Sainsbury Scraps Discount Experiment as 16 Netto Stores to Close

(Bloomberg) -- J Sainsbury Plc said it's scrapping a trial of Netto stores in the U.K., abandoning a two-year effort to directly challenge discounters Aldi and Lidl.

The 16 Netto outlets will close in August, the London-based company said Monday, a move that puts about 400 jobs at risk.

The decision by Sainsbury and Danish joint-venture partner Dansk Supermarked shows the difficulties traditional supermarkets are having in coping with the rapid expansion of the German discounters. Sainsbury said the pending acquisition of Argos owner Home Retail Group Plc would be its main focus, outweighing the investment that would have been needed to expand the roll out 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,” Sainsbury Chief Executive Officer Mike Coupe said in a statement. “Consequently, we have made the difficult decision not to pursue the opportunity further.”

Customers Defecting

After plowing hundreds of millions of pounds into price cuts, the U.K.'s biggest grocers are searching for new ways to stop more customers defecting to budget chains. Sainsbury brought Netto stores back to Britain in 2014 after they disappeared in 2010 following the acquisition of its 193 stores in the country by Wal-Mart Stores Inc.'s Asda.

Most of those working in the Netto stores are Dansk employees, who will return to their parent company, Sainsbury said. The U.K. supermarket will seek to redeploy its staff in the venture, a company representative said.

Sainsbury said it will write off the 20 million-pound ($27 million) value of its investment in Netto and incur cash costs of 10 million pounds to close the joint venture.

To contact the reporter on this story: Paul Jarvis in London at pjarvis@bloomberg.net. To contact the editors responsible for this story: Matthew Boyle at mboyle20@bloomberg.net, Paul Jarvis