Sainsbury's to close Netto stores in UK

Sainsbury's and Dansk Supermarket Group have confirmed that they are to end their joint venture trial of Netto UK stores.  It is expected that the 16 stores will continue to trade throughout July and will close during August.

Sainsbury's made the following announcement to the London Stock Exchange this morning:

The Netto UK JV was launched in June 2014 to explore the fast-growing discount grocery retail segment in the UK. Following the initial period of trial store openings, DSG and Sainsbury's made their decision to end the venture after assessing trading data, customer and operational insights, expansion costs, the evolving food retail market and long-term strategies for each business.

Mike Coupe, Chief Executive of Sainsbury's, said: "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.

"Against this backdrop, as planned, we carried out a detailed review with DSG on the future of Netto. 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 and instead focus on our core business and on the opportunities we will have following our proposed acquisition of Home Retail Group. Our learnings from the trial will undoubtedly benefit the rest of our business as we move forward."

Per Bank, CEO of Dansk Supermarked Group, said "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. 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.

"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."

The businesses are working together to minimise the impact of this decision on Netto colleagues and will be consulting with and supporting colleagues through this period of change.

The current carrying value of the investment in the Netto JV within J Sainsbury plc consolidated group accounts is £20m which will be written down to zero. Sainsbury's is also expecting cash costs of circa £10m to wind down the business. These amounts will be excluded from underlying results.

Source :  Sainsbury's/London Stock Exchange
www.j-sainsbury.co.uk 

Analyst View

Connor Campbell, a senior market analyst at www.spreadex.com gave us his view:

"News that Sainsbury’s is closing its 16 UK Netto hasn’t helped its stock price this Monday, though it is unclear whether investors are reacting to the dismissal of the Danish chain or the ongoing unease in certain sectors post-Brexit. Getting rid of the Netto brand is set to cost Sainsbury’s around £30 million (£20 million in an asset writedown and £10 million in winding down costs), another factor that may be informing investors’ behaviour at the start of the week."

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