Sainsbury's is ditching its partnership with European discounter Netto and plans to close 16 Netto UK stores in August.
The joint venture between Dansk Supermarked Group's (DSG) Netto and Sainsbury's began in June 2014; around 400 jobs in the stores are now at risk as Sainsbury's focuses instead on its acquisition of Argos owner Home Retail Group.
Sainsbury's was looking to explore its options in the UK's discount grocery market, but after a strategic review of trading data, customer insights, and expansion costs, has decided Netto wouldn't be able to grow quickly enough.
Mike Coupe, chief executive of Sainsbury's, said the company had learned about the discount grocery market from the trial, but said "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" for the venture to work.
"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," Coupe said.
Fraser McKevitt, head of retail and consumer insight at Kantar Worldpanel, said:
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.
Per Bank, chief executive of DSG, said: "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 have together decided to end the joint venture and focus on other opportunities within our respective businesses."