This involves improving store standards with a new softer look and feel, introducing a broader product range that includes a more comprehensive mix of both branded foods and own-label products, and adding a 'food to go' offer, tobacco and an electronic top-up service.

In tandem with these major changes Netto is also embarking on an aggressive expansion plan. Richard Lancaster, managing director of Netto Foodstores, who is the architect of the current grand plan, has stated that he intends to open around 25 stores per year with the aim of driving sales up to the £1bn level in 2010.

To achieve this objective the company is considering stores in all types of locations, including shopping centres and retail parks. Although William Smith, property director at Netto, says its shopping centre sites are "few and far between, just like the other food guys", with only six such stores in its portfolio including one in The Oaks in Acton, West London, he adds: "We'd take the odd one but only if it had a surface level car park or was in a neighbourhood location."

In contrast, retail parks are a much bigger deal for the company, accounting for approximately 10 per cent of its estate. These include outlets in Park Road in Pontefract, Queens Road in Sheffield and Castle View in Dover.

The common denominator (and what Smith is looking for in new units) is 10,000 to 12,000 gross sq ft, although he adds that there is sufficient flexibility in the Netto model for it to take larger or smaller outlets. This average has grown in recent years as the number of lines in the stores has grown - and the current plan will see this increase from the current 1,100 SKUs to around 1,400.

Potential sites must also have a minimum of 60 to 80 car park spaces as well as having a high profile, easy access and good visibility. "They should not be on fashion parks, but more likely restricted-use where there is consent for food. These tend to be leasehold although we prefer freehold," adds Smith.

This preference for owning its bricks and mortar is made possible by the investment power of Netto's parent company. This has enabled Netto to build its own retail parks and act as tenant to other retailers.

"We've built four to six unit schemes. It's a significant investment but we've the cash if the location is right," Smith explains.

Although the company is willing to consider a variety of units including new-builds, brownfield sites and converting former food stores, Smith says there has been a "refining of the brand" that has heralded a more consistent approach to site selection.

Like many other retailers Smith says Netto has also brought in the stipulation that new sites must have a cap on the increases to their future rentals. This could be in the order of 2.5 to 3 per cent compound growth or an open market rental increase, whichever is the lower.

There are no such stipulations on where Netto opens its new stores. Although Smith says the company is strongest in the North (where its main store support and distribution infrastructure exists) the opening of a third depot in the M62/M6 corridor next year will give it the opportunity to expand. "We will look to expand in the north-west and north Wales and more into the south," he says.

Statistics

Netto

UK division founded in: 1990

Parent company: AP Moller-Maersk Group

Netto UK managing director: Richard Lancaster

Turnover: £627m (for year to December 2006)

Agents include: Ian Scott & Co, King Sturge, Mason & Partners and Alder King

Number of UK stores: 180-plus

Average store size: 10,000 to 12,000 sq ft

Website: http://www.netto.co.uk

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