Coles enlists Bain to streamline product selection on shelves

Coles is actively decreasing the quantity of products on its shelves, which may harm suppliers but increase earnings for the retail giant.

The country's second-largest grocery chain has been secretly working with Bain consultants for months and wants to reduce its selection by at least 10% to increase sales for the lines that remain on the shelves.

The decision to reduce the quantity of items comes after months of friction between big retailers and their suppliers. Coles and Woolworths have been accused of rising pricing by both the Coalition and the Labor parties. The store operators have attempted to deflect criticism by claiming that their suppliers requested the hikes.

At the same time, the Australian Competition and Consumer Commission is looking at how much control Coles and Woolworths have over price setting and how they use that leverage to deal with their suppliers.

According to Bryan Raymond, an analyst at JPMorgan, Coles' decision to decrease items occurred at an enjoyable time, "as the tone of negotiations indicates that Coles sees limited risk of change from the ACCC's inquiry."

Coles' reduction in the number of products was announced to investors in November, when the company's chief commercial officer, Anna Croft, told a briefing that the supermarket would be "simplifying overall."

"Even if I went hard year after year for two years on the trot and did double-digit rationalization, I would still have more range than in 2019," Ms. Croft remarked then. "But we're reinvesting in the categories in the space that makes the most difference to customers."

Last year, Coles outpaced its larger rival, Woolworths, in sales growth. That was largely down to luck; Woolworths' elimination of Australia Day merchandise sparked boycott demands from Opposition Leader Peter Dutton, and lengthy strikes delayed goods arriving in stores later in the year. However, Coles has successfully positioned itself as the cheaper of the two grocery behemoths.

Last year, Woolworths claimed it had increased discounting as it warned of lower-than-expected profitability. Some brokers linked this to considerable political pressure on supermarkets to reduce pricing.

According to JPMorgan's Mr Raymond, Coles' approach of reducing the quantity of items would benefit the company's earnings in the short term. Still, he did not believe it was viable to increase long-term returns. Fewer products mean increased sales for those on shelves, and surviving suppliers can make Coles more profitable.

"Each year, this strategy grows more difficult. "If the primary motivation is margin, the remaining range may become less appealing to consumers," he said. "This is not a new approach, but Coles' commercial staff is now actively pursuing gross profits under Anna Croft's leadership. Coles did not experience the same gross margin expansion as Woolworths during the high-inflation period and is now playing catch-up."

While Coles has not mentioned which goods it may discontinue, Ms Croft referred to the supermarket's 13 essential table salts while briefing investors late last year. She proposed that Coles reduce that number to five and offer three different types of salt to give shoppers more options.

Ms Croft also noted haircare brands marketed in six different sizes as a source of "huge complexity," claiming that the number might be cut in half.

Nationals leader David Littleproud, who has previously expressed worries about the power imbalance between supermarket giants and suppliers, said decreasing the number of products on shelves simply eliminated competition.

"That's what they're attempting to accomplish. "This isn't about anything other than Coles increasing its profit margins at the expense of Australians by reducing competition," he stated Sunday. "What that will do is change the culture."

Mr Littleproud has claimed that the ACCC should be able to force Coles and Woolworths to sell portions of its supermarkets if it discovers abuses of market dominance and imposes swift $10 million fines for poor behavior.

"What this will do is alter the culture. "Introducing a supermarket commissioner will allow people to come forward confidentially, and the commissioner will escalate the matter to the ACCC," he added.

According to Andrew Leigh, the assistant minister for competition, the government has already implemented several adjustments that will take effect in April to provide suppliers with more protection. The modifications were made in response to a review by former Labor minister Craig Emerson, who found that stronger sanctions were required if supermarkets violated a code of conduct controlling their relationships with suppliers and food manufacturers.

"That's the biggest change in the power balance between supermarkets and suppliers that we've seen in the last couple of decades," Dr. Leigh told the crowd on Sunday.

"We've also implemented an anonymous complaints procedure through the ACCC, which did not exist previously. That addresses the issue suppliers identified with us: there was a lack of complaints due to fear of reprisal."

A Coles spokesman stated that the company was working with suppliers to improve the value, quality, choice, and availability of products for customers.

"Coles takes compliance with Australian consumer law very seriously, and we emphasize building trust with all of our stakeholders, particularly our customers, team, and suppliers," said Mrs. Collins. "We are committed to having strong, collaborative relationships with our suppliers, which is fundamental to our success and essential for serving our customers."

She explained that regular consumer research and interactions with suppliers assisted the company in changing the variety of products stocked to eliminate duplication and make it easier for customers to select the proper items.

The Australian Food & Grocery Council, which represents suppliers, stated that supermarkets ultimately control shelf prices, and its members saw product withdrawal as a means for retailers to put pressure on them. The council cited its testimony to the ACCC inquiry, which said supermarkets had hiked shelf prices for several products, resulting in a drop in sales.

"[The supermarkets] then initiated discussions on delisting the product unless they are provided with further financial support such as increased margin or additional promotions," according to the submission.