Discounters are notoriously secretive about all aspects of their business but now one, the Danish chain Netto, has broken its silence to talk about strategy and plans for the future. Thomas Jellum, Netto UK's good-humoured MD, says the company is thinking big, it is thinking local and it is thinking quality to keep a broad base of of customers satisfied. "Netto is an acceptable shape and ready for devlopment. We may not be the biggest, but we want to be the best in the local area", he adds.
It's well documented that the hard discounters have found life tough in the UK. The main chains still have a combined market share of only 2% to 3%, depending which figures you look at. Netto is the smallest of the three, operating 129 stores and holding 0.6% share of the market (according to TNS data for December 2001). The discounters have all found it hard to grow their share  partly because UK shoppers are spoilt for choice and tend to dislike the rather spartan continental discount formula, and partly because of the planning obstacles to opening new stores.
After 12 years operating in the UK, these are things of which Netto is all too aware.
Jellum admits customers expect a lot more from their supermarkets than they do in Continental Europe. They want no-frills prices, he says, but with frills.
"We have strived to have quality measured against the best, but at prices you can call discounted. I'm sure our quality is better than competitors at a similar price," he adds. "We must keep prices down and we must keep costs down, and be creative in selecting in line with customers' reasonable expectations."
Jellum admits he was surprised about this focus on quality  and the bureaucracy of the UK's rigorous planning laws  after he arrived in the UK in June 2001. He joined from Poland, where he was MD of the Netto business. Before that he had worked for Netto in Denmark since 1995.
Jellum explains that Netto in the UK recognises it has vertical and horizontal competition. Horizontal competitors are the other discounters, both on food and non-food, and vertical competition comes from the supermarkets. "We perceive ourselves as a local store, competing with everyone on the local level. The competition depends on the area. We are competing head-to-head with Asda in some places, but in other areas there is no Asda within 100 miles."
As Jellum points out, his major supermarket rivals are now focusing on customer segmentation and ways of attracting the most lucrative customers through their doors. But discounters can't be that fussy.
He adds: "Of course everyone wants a customer who spends a lot on products that do not cost much to get through the supply chain. But as a discounter we look at everyone as a potential customer. We are careful not to target and not to move away from a wide customer base."
Nevertheless, Jellum acknowledges that Netto needs to try new initiatives  even if that sometimes means taking risks.
Only that way will it be able to give customers the products they don't even know they want, he says.
That's why initiatives such as food to go are being trialled  a microwaveable Chinese takeaway priced £3.99 is being tested at all 129 stores. Sandwiches are being considered for the future and, while Jellum says the market data on sandwich sales looks good, he says Netto must run a trial to see whether its customers want to buy them, given they are visiting his stores to stock-up on core groceries not to buy impulse lines.
As well as testing new areas, Netto also offers some extra services such as newsagents' concessions, which are in a few stores, and cashpoints, which are available at a handful of others. The company is even thinking of installing creches to meet the needs of the family shoppers that it gets through its doors.
At the same time, Netto continues to improve the physical environment of its stores  both to satisfy the needs of UK consumers and legislative changes.
The design of checkouts across the Netto estate is to be modernised, for instance, and turnstiles, which are used at most stores, mainly as an anti-theft device, will be taken out because of changes in the law. Other anti-theft measures will take their place, including a perimeter for trolleys, where wheels will lock if they are taken beyond the boundary. Netto is also trialling the civil recovery scheme, where it pursues shoplifters through the civil courts.
Underperforming fabric replaced
As well as improving the quality of its stores, Netto is gradually moving out of the high street and into more out-of-town locations. Unsuitable or underperforming stores are also being replaced by better sites in the same locality. Netto had 145 stores two years ago, but Jellum has divested some of the less successful sites.
Netto targets sites of about 10,000 sq ft but Jellum would not put a target figure on store numbers. Netto's main obstacle to expansion in the UK is winning planning permission for stores, he says. At any one time 30 applications may be in the pipeline, but the process can take a year, and a big percentage are refused. But Jellum says: "The way we look at the business is how profitable we are, not just forcing up store numbers. Stores need to be of a certain quality. Our strategy is to be the best not the biggest."
As for the future direction of Netto and its discount offer, he says: "Change is inevitable, but to be good it must be consistent with the format. We provide what our customers want. We feel where they are going, and develop in line with their needs and expectations."
{{ANALYSIS }}
It's well documented that the hard discounters have found life tough in the UK. The main chains still have a combined market share of only 2% to 3%, depending which figures you look at. Netto is the smallest of the three, operating 129 stores and holding 0.6% share of the market (according to TNS data for December 2001). The discounters have all found it hard to grow their share  partly because UK shoppers are spoilt for choice and tend to dislike the rather spartan continental discount formula, and partly because of the planning obstacles to opening new stores.
After 12 years operating in the UK, these are things of which Netto is all too aware.
Jellum admits customers expect a lot more from their supermarkets than they do in Continental Europe. They want no-frills prices, he says, but with frills.
"We have strived to have quality measured against the best, but at prices you can call discounted. I'm sure our quality is better than competitors at a similar price," he adds. "We must keep prices down and we must keep costs down, and be creative in selecting in line with customers' reasonable expectations."
Jellum admits he was surprised about this focus on quality  and the bureaucracy of the UK's rigorous planning laws  after he arrived in the UK in June 2001. He joined from Poland, where he was MD of the Netto business. Before that he had worked for Netto in Denmark since 1995.
Jellum explains that Netto in the UK recognises it has vertical and horizontal competition. Horizontal competitors are the other discounters, both on food and non-food, and vertical competition comes from the supermarkets. "We perceive ourselves as a local store, competing with everyone on the local level. The competition depends on the area. We are competing head-to-head with Asda in some places, but in other areas there is no Asda within 100 miles."
As Jellum points out, his major supermarket rivals are now focusing on customer segmentation and ways of attracting the most lucrative customers through their doors. But discounters can't be that fussy.
He adds: "Of course everyone wants a customer who spends a lot on products that do not cost much to get through the supply chain. But as a discounter we look at everyone as a potential customer. We are careful not to target and not to move away from a wide customer base."
Nevertheless, Jellum acknowledges that Netto needs to try new initiatives  even if that sometimes means taking risks.
Only that way will it be able to give customers the products they don't even know they want, he says.
That's why initiatives such as food to go are being trialled  a microwaveable Chinese takeaway priced £3.99 is being tested at all 129 stores. Sandwiches are being considered for the future and, while Jellum says the market data on sandwich sales looks good, he says Netto must run a trial to see whether its customers want to buy them, given they are visiting his stores to stock-up on core groceries not to buy impulse lines.
As well as testing new areas, Netto also offers some extra services such as newsagents' concessions, which are in a few stores, and cashpoints, which are available at a handful of others. The company is even thinking of installing creches to meet the needs of the family shoppers that it gets through its doors.
At the same time, Netto continues to improve the physical environment of its stores  both to satisfy the needs of UK consumers and legislative changes.
The design of checkouts across the Netto estate is to be modernised, for instance, and turnstiles, which are used at most stores, mainly as an anti-theft device, will be taken out because of changes in the law. Other anti-theft measures will take their place, including a perimeter for trolleys, where wheels will lock if they are taken beyond the boundary. Netto is also trialling the civil recovery scheme, where it pursues shoplifters through the civil courts.
Underperforming fabric replaced
As well as improving the quality of its stores, Netto is gradually moving out of the high street and into more out-of-town locations. Unsuitable or underperforming stores are also being replaced by better sites in the same locality. Netto had 145 stores two years ago, but Jellum has divested some of the less successful sites.
Netto targets sites of about 10,000 sq ft but Jellum would not put a target figure on store numbers. Netto's main obstacle to expansion in the UK is winning planning permission for stores, he says. At any one time 30 applications may be in the pipeline, but the process can take a year, and a big percentage are refused. But Jellum says: "The way we look at the business is how profitable we are, not just forcing up store numbers. Stores need to be of a certain quality. Our strategy is to be the best not the biggest."
As for the future direction of Netto and its discount offer, he says: "Change is inevitable, but to be good it must be consistent with the format. We provide what our customers want. We feel where they are going, and develop in line with their needs and expectations."
{{ANALYSIS }}
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