Image copyright Netto

UK supermarket chain Sainsbury's is to close its Netto stores after abandoning a joint venture with a Danish retailer.

Its 16 stores will continue to trade throughout July and will close during August, Sainsbury's said.

About 400 jobs are at risk, although the companies hope to re-deploy staff where possible.

Sainsbury's and its partner in the venture, Dansk Supermarked Group, said the trial was ended because Netto needed rapid expansion and investment.

The tie-up was an attempt to rival discounters such as Aldi and Lidl.

'Difficult decision'

Mike Coupe, chief executive of Sainsbury's, said: "To be successful over the long-term, Netto would need to grow at pace and scale, requiring significant investment and the rapid expansion of the store estate in a challenging property market.

"Consequently, we have made the difficult decision not to pursue the opportunity further and instead focus on our core business and on the opportunities we will have following our proposed acquisition of Home Retail Group," he added

Sainsbury's teamed up with Danish retailer Dansk Supermarked Group (DSG) in 2014 to bring Netto back to the UK.

The brand once had 200 stores but these disappeared after the chain was sold to Asda in 2010.

Analysis: Emma Simpson, business reporter

Sainsbury's took the whole industry by surprise back in 2014 when it decided to try to beat the fast growing German discounters, Aldi and Lidl, at their own game.

Netto had disappeared from the UK four years previously. Although the 16 stores in the north of England were said to be trading within expectations, Sainsbury's and Dansk are now pulling the plug.

The business clearly needed scale to succeed in the longer term.

In any case, Sainsbury's has much bigger fish to fry with its planned takeover of Home Retail Group. This is where its focus now lies.

It's no real surprise that it has decided to call it a day with Netto instead of pushing the button on expansion.

The supermarket chain said although Netto was trading in line with expectations it could not ignore the evolving food retail market and the long-term strategies of both itself and its partner, DSG.

It said its decision to end the trial was also based on trading data, customer insights and expansion costs.

Sainsbury's said it would write down to zero its £20m investment in the trial and expected to incur a further £10m wind down costs but these would not be included in its underlying results.