Investigating Sainsbury's Decision to Close Netto UK Stores: A Report

This report explores the reasons behind Sainsbury's decision to close Netto UK operations after a trial joint venture. The analysis focuses on challenges faced, including achieving the necessary scale in a competitive market dominated by Aldi and Lidl. The decision was influenced by the need for significant investment and rapid expansion in a challenging property market, as well as evolving consumer habits. Despite positive initial performance, Sainsbury's concluded that Netto required greater scale in a short time frame for long-term success, leading to the difficult decision to end the venture and focus on other opportunities. The report also touches on the impact on employees and the key learnings that Sainsbury's will apply to their broader business strategy. Desklib provides a platform for students to access similar reports and study tools.

INTERVIEW QUESTIONS: Manager C (Dansk)
1. Was the decision to close down Netto’s operations in UK because it was not
making enough business? Did it not live up to expectations? Could you
elaborate on this.
We, together with Sainsbury's, set out to trial Netto in the UK to provide us
with the basis to review the business at the end of the trial period. Whilst we
are pleased with the performance of the stores to date, it has become clear to
both partners that the business requires greater scale over a short period of time
to achieve long-term success.
2. What are the challenges that the venture faced?
Reaching scale has been challenging due to appropriate site availability and
therefore we decided together to end the joint venture and focus on other
opportunities within our respective businesses. The Netto store concept is based
on a strong promotional strategy. Promotion accounts for up to 60% of sales in
Denmark and Sweden. This store concept would need some alteration in the
future to fit to the changing discount shopper habits in the UK. According to
research the number of discount shoppers who come to a discount store to buy
an item on promotion has been declining.
3. So what made you make this decision?
British consumers are eager and willing to shop with discount retailers but even

with Sainsbury’s help, Netto couldn’t match the competition it faced from the
likes of Aldi and Lidl. Operating in its ‘trial’ format prohibited Netto from
achieving the economies of scale that have generated such success for its rivals.
Aldi and Lidl have each had a rapid programme of new store openings matched
with huge advertising and marketing spend to keep themselves front and centre
in consumers’ minds. Even though there is a a 20-year long history pre-dating
this joint venture, Netto lacked brand awareness and credibility in this latest
incarnation, and that isn’t something which can be achieved without making
significant investment at this poiny. 15.7 million British shoppers have visited a
discount grocery retailer in the past 12 weeks, which is up 48 per cent on five
years ago. The Netto UK joint venture was created in 2014 on a trial basis as
Sainsbury’s looked to take on discount rivals Aldi and Lidl…however after a
review of business strategy and the changing dynamics taking into account
trading data, customer feedback and expansion costs,we felt it was best to move
on to other opportunities. ]Netto is an excellent retailer with talented leaders
and colleagues and we have learnt a great deal about the discount grocery retail
market from this trial venture. Since we first envisaged the trial, almost three
years ago, the grocery sector has evolved significantly and we launched our
strategy 18 months ago to address these changing dynamics.To be successful
over the long-term, Netto would need to grow at pace and scale, requiring
significant investment and the rapid expansion of the store estate in a
challenging property market. Consequently, we have made the difficult decision
not to pursue the opportunity further.
4. What are your plans for the future?

We have thoroughly enjoyed the collaboration with Sainsbury's and will now
apply key learnings and insights within our business to deliver added value for
our customers and owners.