Morrisons chief executive Dalton Philips has conceded that Sainsbury’s joint venture with Netto is a good idea in the fight against the German discounters.

Philips said the deal between the two, which will see Netto open 15 stores by the end of next year, reflects the structural shift in the market as Aldi and Lidl - as well as Waitrose at the premium end - nibble away at the shares of the big four.

“Sainsbury’s is recognising this shift is happening,” said Philips. “I thought it was a smart move.

“This channel is growing so quickly you need to be part of it. How you access it is the conundrum.”

Morrisons has been one of the hardest hit grocers as the popularity of the German discounters rise. The Bradford based grocer’s market share fell from 11.6% to 10.9% in the 12 weeks to May 25, when Lidl’s jumped from 3% to 3.6% and Aldi’s jumped from 3.5% to 4.7%, according to Kantar data.

As a result, Morrisons has launched massive investments in price in a bid to fight back against the discounters.

Addressing the British Retail Consortium’s Retail Symposium this morning, Philips said the rise of the “extremes” – Aldi, Lidl and Waitrose - does not mean the big four cannot continue to grow.

“Being in the middle you have two advantages that the extremes don’t have – scale and experience,” he said. “The middle is the biggest part of the market. There is growth left.”

Yet he admitted the middle had to “fight back”. “If you don’t fight back the extremes become the norm,” said Philips.

Philips said discounters have become the norm in countries such as Germany, where they hold 42% of the market, compared to 6% here.

“It’s not about becoming a discounter,” he said. “You can’t outdiscount a discounter. It’s a trap. It’s about facing into it and fighting back.

“We’re controlling as much of our supply chain as we can. People care where their food comes from. That’s how we believe we can win.”