Discounter Netto International may not have the global ambition of Aldi and Lidl, but its strength on a European level can’t be underestimated. Stephen Wynne-Jones met Michael Løve, the group’s CEO. This article first appeared in ESM Issue 4 2019.
When ESM first contacted Danish retailer Netto International’s chief executive Michael Løve a couple of months ago, to organise an interview, the main discussion point was set to be Netto 3.0, the new store format unveiled last year, to much fanfare.
Then, days before our meeting, a bombshell – Netto was exiting Sweden, one of its main markets and the only other Scandinavian country in which it has a presence. Things sure move fast in retail.
“It was an offer we didn’t see coming,” Løve says of the takeover bid for Netto’s Swedish portfolio, by Coop Sweden. “It came out of the blue, but it’s enabled us to focus on our priorities.”
The transaction, which is expected to be completed this summer, will see all 163 Netto stores converted to Coop outlets after a transitional period, as well as the transfer of some 2,000 employees. Following the completion of the deal, Netto International will operate stores in three countries: Germany, Poland, and its native Denmark – an opportunity to consolidate, Løve believes.
A Challenging Market
As of last year, Netto International (along with Denmark-only chains Bilka, Wupti and Føtex) is operated by the Salling Group, which acquired the business from shipping giant Maersk in 2014.
Last year was Netto’s first under this new ownership structure, and the banner put in a solid performance, with its Danish operations having their ‘best year ever’ and Germany and Poland delivering ‘satisfactory results’. Sweden, on the other hand, ‘disappointed’, the group reported, which means that Coop Sweden’s move for the business was a timely one.
“We are a big retailer, by most standards, with 1,350 stores across four markets, so when you need to invest in the business and renovate stores, the capital expenditure can be significant,” Løve explains. “We always struggled a bit in Sweden, in terms of getting a good, solid foothold. We had every confidence we could turn it around. We also knew, however, that it was going to be a long journey.”
Løve, who says that Netto got a “very good price” for the Swedish business, believes that while Sweden is tailor-made for a good discount operator – Netto entered the market in 2002 – consumer shopping habits differ from the group’s other territories.
“The way [consumers] shop in Sweden is how we used to shop in Denmark,” he says. “They tend to do a big purchase for the week, so they are looking for everything in one place. For discounters, that’s a challenge.”
Track Record
For someone who’s worked in and out of retail for close to two decades, Løve has previous experience when it comes to getting retailers back on track.
Educated in the US, Brussels and Australia, Løve began his career in retail in Coop Denmark’s logistics division, later rising to the position of CEO of its SuperBrugsen chain and COO of the overall business. In 2015, he left Coop to head up UK-based home improvement chain B&Q, before his return to Denmark as Netto International boss in September 2017.
“I was hired to revitalise the Netto concept in whatever way made sense,” he said. “Something needed to happen, and there was no clear steer on what that necessarily was. It was a very successful brand, but we needed to take the next step.”
Løve’s predecessor, Claus Juel-Jensen, was at the business during some of its most transformative years, with expansion in Poland and Germany, as well as dalliances with the UK market – Netto sold its 193-strong UK store estate to Asda in 2010, before re-entering the market for a short period, in a joint venture with Sainsbury’s, in 2016.
In recent years, however, while its rivals have embraced new store formats and broadened their horizons, Netto has largely sat on its hands. Until, that is, Netto 3.0 came along.
“When a concept hasn’t changed materially in a long time, at some point, you reach a point in that cycle where you need to upgrade,” Løve says of the new concept. “Everybody else around you is changing, and when those changes start to accumulate, your concept begins to look relatively dated, compared to the others. We had to work out what made Netto the success that it was originally, and work out what that translates into today.”
Netto 3.0
The Netto 3.0 store concept was launched in June of last year, at what the retailer called the ‘discount store of the future’ in Copenhagen. Boasting a much broader fresh selection, wider aisles, and an altered colour palette (the brand’s yellow iconography has been toned down), the aim was to create a space that was much more enjoyable to shop, yet retained the value offering for which the brand is famous.
“In terms of the discounter offering, there’s no change,” Løve says, “but these days, it’s not enough to offer price to customers, you also have to offer a nice shopping experience. You need to compete on location, you need to compete on convenience, you need to compete on ease of shopping. These are now the parameters by which discounters are measured.”
At the same time, Løve says that Netto was conscious of giving off the wrong impression – that shoppers might think that an upgraded store would also lead to upgraded prices.
“One of the things we’ve made sure of is to provide signs and other reminders that this is a discounter,” he says. “Our hope is that shoppers will come in and think, ‘Wow, it’s such a nice store, and it isn’t expensive. What’s not to like?’”
Being Bold
Customer feedback was taken on board in developing the new stores, but, as Løve explains, “it’s more than about being ‘customer-centric’, or other buzzwords you might want to use. You need to work out for yourself how you can make a big impact. What can we do that no one else is doing?”
This ties in with Netto’s reputation for being “quite a bold company,” says Løve. “Back when we were just a small player, we expanded into East Germany, just after the wall came down. We literally took a truck over the border and set up a store in a communal food hall. That boldness is very much part of us. We have to get back to that.”
Scandinavian Identity
The development of Netto 3.0 has also enabled the business to cement its Scandinavian heritage beyond the obvious in-store touches, such as the use of wooden logs in the fresh department.
“We are a Scandinavian discounter. We are not a German discounter,” says Løve. “In the same way that most people would say Aldi and Lidl are typically German, what is it about Netto that makes it typically Scandinavian? It’s something we’ve given a lot of thought to – it’s how we want our stores to look, how we treat our colleagues, the way we engage with our customers.”
It’s also a willingness to adapt to surroundings, as evidenced by the fact that Netto 3.0 is being altered slightly for the Polish and German markets, where the roll-out is also under way.
“We have different starting points in each country – the size of the range, the mix between the multibuys and the fixed range,” he adds. “We very much believe in our local management being the best people to decide how we move forward. The direction is the same, but the steps taken will be different.”
Conversion Process
Netto has set a target of five years for the conversion of the entire portfolio, in each of the three markets, and with more than 1,000 stores earmarked for upgrade, Løve admits that this target is “extremely ambitious”. Around 70 conversions are planned in Denmark this year alone.
“You need to get it into a routine, in order to keep the cost down,” he explains. “In addition, with some stores, you don’t need to do a full refurb. We are trying to work out how far we need to go on certain sites in order to achieve what we want to achieve. The difference now, though, is we have a new starting point, and the confidence to follow through on it.”
© 2019 European Supermarket Magazine – your source for the latest retail news. Article by Stephen Wynne-Jones. Click subscribe to sign up to ESM: European Supermarket Magazine.
