J Sainsbury plc’s Netto Deal Brings Fight To Rivals

Shares of all the leading UK supermarkets are down this year to date,  due to “price war” fears and the continued success of Aldi and Lidl. Sainsbury’s (LSE: SBRY) (NASDAQOTH: JSAIY.US), which has the lowest profit margins in the sector, is thought to be dangerously susceptible to headwinds from a sales grab by rivals Morrisons and Tesco.

Trouble is, if you’re an investor looking for retail exposure, there are fewer options at the discount end. You can’t buy shares in Aldi or Lidl, both of which have enjoyed rapid growth and now account for a combined 8% of the UK grocery market.

Sainsbury'sBut in a cunning move J Sainsbury has partnered with Dansk Supermarked to bring Netto back to the UK. The new Netto stores will offer “outstanding value and ease of shopping to customers and will feature a great fresh food offer as well as an in-house bakery“.

Sainsbury’s and Dansk Supermarked will each invest £12.5m and the first Netto stores will open in the North of England later this year. If this trial is successful then more stores will be opened across the country.

Mike Coupe, the incoming Sainsbury’s boss, commented:

“We are very excited about helping to bring the new Netto to British shoppers. This joint venture provides a great opportunity for us to gain exposure to the high growth discount market for the first time.”

“If successful, this trial has the potential to open up a new long term growth opportunity for us complementing our fast expanding convenience, online and non-food businesses, as well as our existing supermarket estate.”

The UK discount sector is thought to be worth £10bn in annual sales and is forecast to double in value to £20bn over the next five years. Sainsbury’s shares held steady in early trade at 321p.

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Mark does not own shares in any company mentioned. The Motley Fool owns shares in Tesco.