Sainsbury’s plans for more Netto stores is best step to fighting discount threat, say analysts

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Sainsbury’s plans to expand its Netto alliance is the best strategy for fighting the discount threat, according to leading retail analysts.

Commenting on the retailer’s results for the three months to 9 January 2016 – Sainsbury’s posted a 0.4% fall in like-for-like sales, excluding fuel – Himanshu Pal, retail insights director for Kantar Retail, said: “Sainsbury’s results will do nothing to convince shareholders to stump up cash for its proposed bid for the Home Retail Group. While the takeover makes sense at a strategic level, these results show that there are more pressing needs for investment.

“Not least of these is to fund a price war to defend and grow its market share. Asda has already announced a £500m price investment on top of its £1bn of cuts in November 2013 and other grocers will follow suit.

“In addition, shareholders will question the wisdom of investing £1bn on a takeover of the Home Retail Group when the immediate threat is from discounters. Sainsbury’s partnership with Netto in the north of England has proved to be a successful alliance in the war against Aldi and Lidl and shareholders are more likely to push for more resources directed to that front in the form of new store openings.”

Phil Dorrell, partner, Retail Remedy retail consultants, agreed: ““While celebrating gains at the premium end of the spectrum with Taste the Difference, Sainsbury’s hasn’t taken its eye off the value end.

“Plans for 15 more Netto stores is another step towards strengthening Sainsbury’s against the discounters,” he said.

But Dorrell said plans to leverage Argos sites for convenience store expansion and distribution and to fill overspaced supermarkets made sense for a grocer outperforming its competitors but under margin pressure.

According to Dorrell, Sainsbury’s has a steady rein on promotions and maintained standards well through Christmas.

“Marketing was understated and subtle, suggestive of a new more sophisticated shopper tired of the brash hard sell,” he said.

“The success of TU clothing online should be applauded but we won’t break open the Champagne until we see the clothing margin leaks in-store from lumpy supply, poor display techniques and constant clearance addressed.

“The MOG Christmas campaign may have touched hearts but it is a stretch to suggest that it was the driver of the sales. This we put down to a good run of great pricing with trustable products and the best own label range of any of the big four.”