Supermarkets: A trolley-load of pain NOW, it seems, there is nowhere left to hide. For a time Sainsbury's, in the upper middle of the grocery market, seemed to be relatively immune from the relentless rise of the cheap discount shops, Aldi and Lidl. The two German-owned supermarkets have been eating into the profits and market-share of Sainsbury's rivals such as Tesco and Morrisons for years. But now the venerable grocer is feeling the pain too. For the half-yearly results released on November 12th from the country's third biggest supermarket were nearly as bad as what weary investors have come to expect from Tesco and Morrisons. Sainsbury's reported a half-year loss before tax of £290m and said that like-for-like sales had fallen 2.1% over the same period. Moreover, Mike Coupe, the new chief executive, warned that the downward trend on sales was likely to continue and that the supermarket now faced a "perfect storm" of challenges. The threat from the discount stores is one. As if to make the point Aldi on November 10th unveiled plans to double the number of its stores and hire 35,000 more staff. That announcement was deemed to be so important the prime minister himself, David Cameron, whizzed up to Warwickshire to hear it. But changes in peoples" shopping habits, such as buying more online and a fall in food prices for the first time in ten years are having as great an impact on the market. To turn things around, Sainsbury's, like other struggling supermarkets, announced that it will cut spending in order to try to lower prices, a clear strategy to compete with the discounters. It will cut back on store openings, for instance, and make savings in operating costs of about £500m over the next three years. Meanwhile it will put £150m into lowering prices over the next 12 months. The store will also devote more store-space to non-food items such as clothes and homeware. Whether that gets to the root of Sainsbury's problems, however, is another matter. In a competitive market it is clear that supermarkets have to offer a distinctive product from their rivals; it's not all about price. Even more affluent shoppers now prefer Aldi and Lidl because their stores are much easier to navigate and quicker to shop in than Tesco or Sainsbury's. The discounters carry fewer products than the traditional stores, and many shoppers seem to prefer that. Mr Coupe admitted that as many as one-quarter of Sainsbury's stores have too much space. But rather than tinker with its own stores too much, which could put off some of its longtime customers, Sainsbury's is also trying a more novel strategy to compete with Aldi and Lidl. It is trying to break their duopoly in the low-cost market by opening a discount retailer of its own, Netto. This relaunch of Netto is a joint venture with its Danish owners, Dansk, and makes a lot of sense. As Natalie Berg, an analyst at Planet Retail, argues, "if you were designing a supermarket from scratch today, you'd take the two-prong approach, a premium brand and a discount brand." The first Netto, which opened in Leeds on November 6th, mimics Aldi and Lidl, for instance, by just carrying 2,000 or so products, unlike the 25,000 in a traditional supermarket. The hope is, therefore, that Sainsbury's stores will not have to dilute their premium brand too much by chasing after less wealthy customers. Netto should do this for them.