New entry to the discount supermarket segment

If a business sees a market segment in which sales are predicted to double to the scale of 15% of the total market in the next five years, you would expect them to be quick to find ways to enter it. However, if you are Sainsbury's, and have a carefully nurtured image and market position to protect, you might baulk at rushing into the discount segment of the market, in case it interfered with that image or cannibalised your market.

The UK supermarket industry has seen significant disruption to the previously established order of things, with all the mass market leaders losing market share to Aldi and Lidl, the discounters. Rather than sit back and watch their market share disappear, Sainsbury's is fighting back by buying its own slice of the fast-growing discount market, through a joint venture with Danish discounter Netto. Sainsbury's and Netto have each invested £12.5m in the 50-50 joint venture and expect to incur losses of £5m-£10m each before March next year. They have set themselves a very tight deadline to achieve success; Per Bank, chief executive of Netto’s owner, Dansk Supermarked, said that they have only one year to prove whether the venture will work, and that the decision whether the chain will be here to stay would be based on “whether we get customers who like our offer”. They are probably right to be cautious: Netto is not new to the UK market but ended a previous 14-year presence here in 2010 when it sold its 200 stores to Asda.

The plan is to open 5 stores by the end of next week in Sheffield, Ormskirk, Doncaster, Manchester and Leeds, and a further 10 by the end of next year, close to the M62 corridor between Liverpool and Hull, to test the water. This is an area where Sainsbury's are currently relatively weak, so it is less likely to take sales away from Sainsbury's.

Two good articles about the move give plenty of background and detail about how the joint venture hopes to succeed, where Netto failed before; one from the BBC and the other from the Guardian - and there are likely to be video reports to add to those later today, as the first store opens in Leeds.They offer a great chance for a case study about market development and strategy for students, looking for answers to questions like the following:

1. What is meant by 'joint venture'?
2. What are the key differences between a discount supermarket, and the large supermarket chains?
3. How does the Netto/Sainsbury's joint venture hope to differentiate itself from the exisiting discounters, Aldi and Lidl?
4. What criteria might Netto and Sainsbury's use to judge whether the joint venture is a success or not?
5. Is Sainsbury's right to consider that this a risk which is worth taking?