Sainsbury's ends Netto discount chain experiment

A sign is displayed at a Sainsbury's store in London, Britain April 30, 2016. Photograph taken April 30, 2016. REUTERS/Neil Hall

LONDON (Reuters) - British supermarket Sainsbury's SBRY.L pulled the plug on Netto stores, its 16-strong, two-year experiment designed as a plan to stop losing market share to the country's fast-growing discount sector led by Aldi and Lidl.

Sainsbury’s set up a joint venture with Dansk Supermarked group to bring Netto to Britain in June 2014, but the pair said on Monday that they were ending the project, with Sainsbury’s deciding the trial did not merit the further investment needed.

The retailer, Britain's no.2 supermarket behind Tesco TSCO.L said it would instead focus on its acquisition of Home Retail Group HOME.L, the owner of Argos, a deal which will significantly expand its non-food business.

“We have made the difficult decision not to pursue the (Netto) opportunity further and instead focus on our core business and on the opportunities we will have following our proposed acquisition of Home Retail Group,” Sainsbury’s Chief Executive Mike Coupe said in a statement.

Sainsbury’s said in June it was prepared for an escalation of price wars in Britain’s highly competitive supermarket sector after reporting a decline in underlying quarterly sales.

Like Britain’s other traditional supermarket chains, Sainsbury’s profits have been squeezed by the fast growth of Germany’s Aldi and Lidl, putting it under pressure to cut prices.

The Netto stores will close during August, Sainsbury’s said, adding that it would write down to zero its 20 million pound ($27 million) investment in the trial and expected to incur wind down costs of 10 million pounds.

Sainsbury’s said that it made the decision to quit Netto based on trading data, customer insights and expansion costs, and that Netto would need to grow at pace and scale in order to be successful in the long-term.

($1 = 0.7532 pounds)

Reporting by Sarah Young, editing by David Evans