If you want to know what Netto is up to, look no further than the cereal aisle. Picking up a box of Netto’s own label corn flakes, Colliers, Claus Waedeled the Danish discount retailer’s new UK managing director, says: “There are two ways of making corn flakes. You can extrude it, or do it like Kellogg and mill it.
“We do it like Kellogg. When you look at Asda’s value range, it’s a similar price but in a plastic bag and it’s extruded. Yet when they do the price comparison they compare it with ours.”
Since Waedeled joined Netto from Føtex, Denmark’s equivalent to Sainsbury, last September, he has made it his mission to challenge what he feels is an unfair comparison between the hard discounters’ and the multiples’ value brands.
Netto benchmarks its products against leading brands quality-wise and price-wise. The comparisons should be with the multiples’ quality own label lines - not their value brands, he says.
“If you compare our corn flakes to other retailers’, we are 31% cheaper compared to other quality own labels and compared with brands we’re 61% cheaper. If you are going to buy on quality we’re under half price.”
The challenge is to convey that smart shopping message to shoppers.
At the end of last year, Netto embarked on an action plan devised to overhaul every aspect of the UK business from the product range, through packaging to staff training and marketing. The early signs are that it is beginning to pay off.
With 135 stores, Netto has the smallest share of the discounters in the UK, with just 1% of the grocery market [ACNielsen]. However, it saw 18% growth in the four weeks to June 12 this year, nearly triple the growth seen in the discount market as a whole. And it was the fastest-growing grocer in the three months to June 12, beaten only by Morrisons (The Grocer, July 31, p6)
Additionally, the latest TNS switching data reveals that it is the only retailer to have stolen custom from Tesco over the past year, albeit a relatively modest £11.1m.
One reason for the turnaround is the increased financial support from parent company Dansk. When Waedeled proclaimed in April that there was capacity in the UK for 1,000 Netto stores, he was not exaggerating the retailer’s aspirations.
After years of taking small stores in poor locations, Netto is shopping for bigger and better located stores with good access and parking. It expects to have opened 15 new stores by the end of the year and at least another 20 to 25 a year subsequently, with the new store on Kingsway Park, Rochdale (see pp32-33), very much the blueprint.
Waedeled admits Dansk took a cautious view of the UK market when Netto entered in 1990, but insists the strategy was right at the time. Now the purse strings have been loosened, however, he wants to develop Netto’s property portfolio through refurbishment, relocation and acquisition, where possible on a freehold basis. “We want to own them ourselves so we can control everything and be sure the rent won’t go up. Also, we can build them the way we like.
“We like to spend money and there’s no limit - it’s a cash-rich company,” he adds, confirming he would like to get his hands on some of the smaller Safeway stores being offloaded by Morrisons. “At least half would fit the profile.”
The refurbishment programme is already well under way. In Netto’s heartland of Yorkshire, where it has a 4% share of the grocery market, it has refurbished 30% of its stores and plans to refurbish a further 25%.
The retailer has also stepped up its marketing. Store openings are now preceded by heavy leafleting in the local press. Waedeled has not ruled out launching a TV advertising campaign, though he says that the value it would deliver is still an issue.
The upshot, he hopes, will be a smarter environment for Netto’s smart shopping concept. Like Aldi and Lidl, Netto is able to offer shoppers low prices because it ruthlessly limits its range.
“We help people choose,” says Waedeled, adding that the approach saves shoppers around 20 minutes on the usual 45-minute supermarket shop.
Where Netto differs from its hard discounter rivals is that it stocks more branded goods - around 20%, contributing to roughly a third of turnover - and has the largest UK-based buying team.
That means it has the advantage of being able to source more products locally, as well as through the national and European Netto networks and the international buying group, Associated Marketing Services, says Waedeled. “Aldi has bigger buying power but 95% of what it does is the same all over Europe. We have an English buying team and can give our customers exactly what they want.”
The decision-making process is always swift because it has such a small head office - just 100 staff, he adds.
Netto is midway through a review of its range that it hopes to conclude by the end of the year.
The strategy is twofold: to revamp its range to appeal to a wider customer base and improve packaging and labelling.
Shoppers can expect to see more products like cook-in sauces and probiotic drinks. In a major overhaul of wine, Netto has extended its range to 50. The most expensive, a Barolo, is £5.99 - £2 more than Netto’s previous top priced wine - but significantly less than the normal retail price.
Wines like the Barolo are already attracting the right kind of word of mouth publicity and Waedeled reports a substantial uplift in sales at the stores with the new range. But though he does want to attract a new type of shopper, it won’t be at the expense of its existing customer base, he insists. “Our customer base is B, C1 and D1. What we’re seeing is that developing through C1s and Bs. We have a policy that we’d like to trade with everybody.”
As part of a new labelling regime, Waedeled reveals it is introducing “food facts” to its own brand packaging from next January. He is reluctant to go into detail but a source close to Netto says the level of information provided on packaging will be “more comprehensive than any other UK retailer’s”. Netto is also introducing innovations such as calendars on fresh foods so consumers can mark exactly when they opened the packet - as well as ringpulls as standard on most cans.
But the big push is with Netto’s so-called hero brands, which is where the corn flakes come in.
Waedeled has identified them along with 20 or so other products including coffee, fruit juice, back bacon, chocolate digestives, toilet tissue and dog food, as core brands it wants to promote more heavily in an attempt to counter the multiples’ hard discounting tactics.
However, having flirted with impulse lines and ready meals, it has decided to scale back its exposure. Operations director John Buitekant explains: “Now we’re moving away from the high street, they’re not so attractive for us anymore. Convenience is not a focus.”
It will take time for Netto to shed its “bad image”, admits Waedeled. But ultimately he sees no reason why it shouldn’t take the fight to the multiples as well as the discounters. “I think we have a better model. We have low people overheads and we’re not chasing super-big margins. We’re very efficient.”
With the help of a box of corn flakes, Netto may finally get its ‘no frills, lower bills’ message across.
>>p32 Rochdale opens