Analysis: Coles, Woolies’ shrinking product ranges are all about the bottom line

Retailers have long been obsessed with expanding their product ranges – product diversification and line extension have been critical for supermarkets to keep pace with online marketplaces like Amazon.However, Australia’s leading supermarkets are changing tack. Coles and Woolworths are both moving to reduce their product ranges in the name of simplification.The product offering changes come as the Australian Competition and Consumer Commission is due to hand the final report from its inquiry into the supermarket sector to the Treasury on February 28.Industry experts have speculated that the range shrink will most likely see the removal of ‘nice-to-have’ products and give greater shelf space to heritage FMCG brands.Coles and Woolworths appear to be trading consumer choice for consumer savings at a time when families are continuing to struggle under inflationary pressures. In doing so, they are following a model already proved successful by Aldi.Coles continues to simplifyColes announced its intention to shrink its range ahead of its FY25 half-year results, notifying customers that they can expect 2500 products to disappear from its shelves – a 10 per cent reduction in its product range.According to Leah Weckert, CEO and managing director of Coles Group, this strategy is about reinvesting in the categories that make the most difference to customers“We would describe it as range optimisation, where we’re actually looking to remove duplication, where we have lots of products that are very similar in their type,” said Weckert on a media call this week.“When we reduce complexity, that drives efficiency for us as a business, but it actually also makes it easier for the customer to shop,” she added.Sales revenue from the supermarket’s Exclusive to Coles portfolio, which includes ‘Simply’ and ‘Coles Finest’ ranges, grew by 5.1 per cent. Coles also added more than 530 new products to the portfolio in the first half of the new year.“We’re very clear on what our priorities are, and that’s getting the balance right between making sure that we have a great value proposition for customers and that we’re investing in the right places to help bring the cost down at the checkout for customers,” stated Weckert.“But at the same time making sure that we’ve got a real laser focus on execution and cost control in our business.”Woolworths looks to follow suitWoolworths Group CEO Amanda Bardwell announced the company’s own plan to reduce product range after delivering disappointing half-year results that revealed net profits dropped 20.6 per cent to $739 million and earnings before interest and tax fell 14.2 per cent to $1.45 billion.“What we’re talking about here is really a very targeted reduction in some areas where we’ve just seen that customers are not needing and not responding to the number of different [products] that we have in some particular categories,” Bardwell said on a media call this week.“To be clear, there is no set target on this at all.”While Woolworths hasn’t disclosed which products or how many will be removed from its shelves, it aims to achieve $400 million in cost savings through cuts to its product lines in tandem with layoffs to its workforce.Similar to Coles, Woolworths is looking to drive value through its own brand. As the supermarket giant is “reducing complexity” with a more limited range, it is also hoping to elevate its ‘Homebrand’ and ‘Woolworths Select’ ranges.“More customers looking for specials, opting into own-brand, and more customers opting to cross-shop across a number of different retailers. The environment is constantly changing,” said Bardwell.Both Coles and Woolworths expect cost-of-living pressures to persist in the second half of the financial year and consumers’ value-seeking behaviours to persist.