Netto’s owners never really understood UK market

Asda might have paid a high price for the Netto supermarket chain but the expectation is that it will squeeze significantly greater revenues and profits from the business than its Danish owners.

It intends to attract more people doing their full weekly shops through increasing the SKU count and boosting the fresh food offer. It will also introduce a greater food-to-go type proposition, and improve general service levels – by doubling in-store staff numbers.

Ironically such a conversion of the stores to what are effectively scaled-down full-service supermarkets is exactly what former Netto UK managing director Richard Lancaster was pursuing before he resigned from the business in late 2008. Netto’s owners were understood to be not fully convinced of such a strategy.

It seems rather strange that Asda and its supportive parent Wal-mart think such a move is a great opportunity (and are willing to pay £778 million for the privilege of delivering on it) whereas Netto’s owners appear to have thought otherwise. I know who I’d side with on this disagreement.

What it highlights is that even after 20 years the Danes were still unwilling to accept that food retailing in the UK was not like that of the rest of Europe.

Insufficient support and backing to the changes implemented by Lancaster made it difficult for him to deliver on his strategy and investments made by him weren’t given time to bed down and bring in returns. He therefore had to go – chiefly out of frustration. (He joined Morrison’s)

Netto’s owners’ strategy since his departure has been to cut costs and return the chain to its rock bottom cut-price roots. The very strategy that had arguably delivered little over two decades of effort. In contrast, Aldi and Lidl had made much more headway.

The sale to Asda could be the purest form of admitting (finally) that they didn’t really know the UK market and that Lancaster was probably right all along. But then, judging by what I’ve heard, maybe not.