Sainsbury’s is to close its Netto stores after deciding to end its joint venture with Danish supermarket chain Dansk Supermarked in the UK.

Sainsbury’s teamed up with Dansk Supermarked in June 2014 to bring the Netto chain back to the UK in an attempt to explore the discount grocery retail segment in the UK and compete with discount retailers Aldi and Lidl. However, the retailer said the 16-store Netto would need to grow at pace and scale, requiring significant investment, in order to make it work.

Mike Coupe, chief executive of Sainsbury’s said: “Since we first envisaged the trial almost three years ago, the grocery sector has evolved significantly. 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.”

Between them, Aldi and Lidl now account for over 10% of the UK grocery business.

The UK Netto stores will continue to trade throughout July, but closures will take place in August, reportedly affecting 400 staff, of which 300 are believed to work in-store. The move is bound to affect bakery staff as every store has an in-store bakery, baking fresh bread, rolls, continental and Danish pastries, including a Copenhager pastry – a traditional Scandinavian pasty covered with poppy seeds and filled with marzipan.

Sainsbury’s said that it would be working with Dansk Supermarked to minimise the impact of the decision on Netto colleagues and has now entered a period of consultation with staff.

Sainsbury’s added  that it will cost around £10m to wind down the business, and its original £20m investment value would be wiped out.