Coles brings its product range down down
Coles is planning to reduce its range by at least 10%, in a bid to increase margins, but experts and stakeholders alike are warning this could be yet another blow for suppliers.
The AFR reports that the supermarket giant has been consulting with Bain over past months in a bid to increase profits, with Coles chief commercial officer Anna Croft first signalling the change during an investor call in November.
At the time, Croft said the supermarket would be “simplifying” and “reinvesting in the categories in the space that makes the most amount of difference to customers”.
Croft attempted to quell any dissent at the time, arguing that “even if I went hard, year after year for two years on the trot, and did double-digit rationalisation, I would still have more range than I had in 2019”, pointing to the large variety of table salt options of shelves – 13 by her count – and numerous sized boxes of the same hair care products as two examples of categories that could be slashed.
JPMorgan’s Bryan Raymond believes a reduction in range is shortsighted.
“Every year this strategy becomes more challenging,” Raymond told investors.
“If the primary motivation is margin, this might make the remaining range less appealing to consumers.
“This is not a new strategy, but Coles’ commercial team is now aggressively going after gross margins under the leadership of Anna Croft. Coles did not see the same degree of gross margin expansion as Woolworths during the high-inflation period and is now playing catch-up.”
The ACCC was directed by the Federal Government in January 2024 to conduct an inquiry into the Australian supermarket sector’s pricing practices, and the relationship between wholesale, farmgate and retail prices.
In its submission to the ACCC inquiry, the Australian Food & Grocery Council warned the supermarkets were hiking item prices, which resulted in a fall in sales, which the supermarkets then used as leverage to squeeze higher margins out of its suppliers, by initiating “discussions on delisting the product unless they are provided with further financial support, such as increased margin or additional promotions”.
The ACCC’s interim report on the grocery sector – delivered last September during the same week the competition regulator took the two supermarkets to court, for the fake discounting scandal – found both Coles and Woolworths charge 20% more for groceries than they did in 2019, and required suppliers to pay rebates for promotions, meaning some suppliers are operating at a loss in order to get their items on shelves.
“The issues raised by a number of suppliers are concerning,” Mick Keogh, deputy chair of the ACCC, said in the report, noting “many consumers have told us that they are losing trust in the sale price claims by supermarkets”.
Keogh continued: “These difficulties reportedly arise from some of the pricing practices of some supermarkets, such as frequent specials, short-term lowered prices, bulk-buy promotions, member-only prices and bundled prices.”
Prime Minister Anthony Albanese said at the time the government was “taking a range of actions to make sure Australians are paying a fair price at the checkout, and Australian suppliers are getting a fair price for their goods”.
“Customers don’t deserve to be treated as fools by the supermarkets. They deserve better than that.”
A Coles spokesperson said the supermarket takes compliance with Australian consumer law “very seriously”.
“We place great emphasis on building trust with all of our stakeholders, particularly our customers, team and suppliers,” the spokesperson said.
“We are committed to having strong, collaborative relationships with our suppliers, which is fundamental to our success and essential for serving our customers.”
The trust building exercise has a way to go; according to recent Roy Morgan polling, the supermarket is currently the second-most distrusted brand in Australia – behind Woolworths.
“Distrust has a far more potent impact on consumer behaviour than trust,” said Roy Morgan CEO Michele Levine, calling it “a virus for brands”.
“It spreads quickly, and reversing it is a complex and multi-year challenge. For the big supermarkets, this means rethinking how they engage with and persuade Australians, particularly in times of economic pressure.”
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It’s only ever about profit with Coles isn’t it. Pretend to care about Australians but they actually couldn’t care less, it’s all just about making more money. Pathetic leadership.
Surely they could remain highly profitable while taking a year to genuinely help out struggling Australians.