Coles to cut product range by 15 per cent

Frank Chung
AUGUST 24, 2016
news.com.au
CUSTOMERS can expect Coles’ shelves to look very different over the next two years as its product range goes Down, Down.
Speaking to analysts during Wesfarmers annual results briefing on Wednesday, Coles managing director John Durkan said the supermarket would cut the number of products on its shelves by 10 to 15 per cent over the next two to three years.
But the actual number of items removed may be much higher, as Coles continues to replace branded products with its own-brand versions.
“You should expect over the next two to three years we’ll take our SKUs [stock keeping units] down somewhere from 10 to 15 per cent net,” Mr Durkan said.
“We’ll be bringing new SKUs into the business, both Coles brand and branded, therefore removing the tail of the underperforming SKUs.”
Mr Durkan said reduction in product lines to date had been crucial for delivering efficiency and productivity gains throughout the supply chain.
“But of course we have to do it in the right, customer-facing way,” he said. “We’ll do it very carefully, category by category, on a store-by-store basis.”
Mr Durkan pointed out that the savings were used to continue lowering prices on those products kept on the shelves.
“As I’ve been saying for a while now, our investment in terms of value is really going to be funded by all of the efficiencies and productivities we see come out of the business,” he said.
“I still see many opportunities to become more productive and efficient in the business, across the end-to-end supply chain. A lot of it is rationalising our range size to bring that down. That brings a whole lot of efficiencies to every part of our supply chain.”
Speaking to media following the briefing, Wesfarmers boss Richard Goyder said the 10 to 15 per cent reduction target had been in place since Terry Bowen had been Wesfarmers’ finance director.
“Every additional SKU you put through your supply chain creates complexity and therefore creates a cost,” Mr Goyder said.
“I’d still argue you can go into a Coles and find too many options in some product ranges and we’re working our way through that because we want our customers to come with us.
“We don’t want to do what Coles did prior to the acquisition, which is to just unilaterally take products off the shelf — that gets customers off-side. That’s why it takes a bit longer but as a consequence we’ll be more efficient.”
Private labels currently make up about one quarter of all supermarket sales, according to market research firm IBISWorld, and that is projected to grow to 28 per cent by 2021-22.
Coles does not reveal internal breakdowns of the proportion of private label to branded products, and a spokesman wouldn’t say whether the supermarket intends to increase that figure.
Coles stocks around 25,000 products, compared with around 2000 at discount rival Aldi. According to market research firm IRI, private label brands were a key driver of Coles growth last year, even drawing customers away from Aldi.
Earlier this year, Canstar revealed customers were warming to Coles private label brands in a way they never had before, with Coles’ own brands taking top spots in long-life milk, toilet paper and dishwasher detergents.
Coles’ full-year earnings rose 4.3 per cent to $1.86 billion with food and liquor sales increasing 5.1 per cent to $32.6 billion, and the crucial comparable sales growth lifted 4.1 per cent.
Prices fell by 2.4 per cent in the last quarter of the financial year — Coles’ strongest price deflation in 11 quarters — working out to $192 million in lower prices.
If Woolworths underperforms when it presents its annual results on Thursday, it will represent the 28th straight quarter the nation’s biggest supermarket has been beaten by Coles.
Today’s result marks 33 straight quarters of comparable sales growth for Coles, going all the way back to the takeover by Wesfarmers in 2007.