Waste and SLOBs Reduction
Cost of Goods Sold (COGS) is often treated as a fixed constraint in retail — something to benchmark and report, but not something that can be meaningfully moved without fundamental changes to the product mix or sourcing strategy. That assumption is wrong. For most retailers operating in Australia and New Zealand, there is a material opportunity to reduce COGS percentage through a combination of range rationalisation, buying power concentration, and pricing architecture — without compromising the range depth that customers actually value.
This article sets out the framework Trace Consultants uses to identify and capture these opportunities, drawing on experience across FMCG retail, convenience, and specialty categories.
The Structural COGS Problem in ANZ Retail
ANZ retail operates in a market with specific structural characteristics that affect COGS. The customer base is geographically dispersed, which increases logistics cost relative to comparable markets. The supplier base for branded goods is largely determined by global arrangements that give ANZ businesses limited leverage over cost price. Private label penetration is lower than in comparable markets, reducing the margin contribution that own-brand products provide in Europe and the UK.
Against this backdrop, the COGS improvement opportunity is real but requires a different approach than simply negotiating harder with existing suppliers. The levers are structural: changing the range to concentrate volume, improving the terms architecture to capture more value from supplier relationships, and using pricing strategy to improve margin contribution without driving volume loss.
Range Rationalisation: The First Lever
Range rationalisation is consistently one of the highest-return activities in retail, and consistently one of the most politically difficult. The resistance comes from category managers who see every SKU as potentially important to some customer segment, from suppliers who resist delisting, and from buyers who have built relationships around the current range architecture.
The analytical case for rationalisation is usually clear. In most categories, a small proportion of SKUs generates the majority of volume and margin. The tail of the range — slow-moving lines, duplicative variants, promotional carry-ins that never exited — consumes buying complexity, warehouse space, and markdown budget disproportionate to its contribution. Removing it concentrates volume on fewer lines, which improves the negotiating position with suppliers on those lines and reduces the operational costs associated with managing a complex range.
The practical approach involves several steps. First, building the SKU-level profitability picture that captures not just gross margin but the cost to serve each SKU — buying complexity, warehousing, handling, markdown risk. Second, identifying the natural consolidation points — where two or three variants can be replaced by one without losing meaningful customer choice. Third, building the commercial case for each rationalisation — the volume transfer assumption, the margin improvement, the supplier negotiation position that follows. Fourth, managing the supplier conversations and the category transition in a way that captures the commercial benefit while managing the relationship risk.
Buying Power Concentration
Buying power in retail comes from volume concentration. Retailers that spread their purchasing across many suppliers in each category have less leverage than those that concentrate volume with fewer suppliers and use that concentration to drive better terms.
The practical implication is that range decisions and commercial decisions are not separable. A range rationalisation that concentrates volume with three suppliers instead of seven does not just reduce complexity — it changes the commercial conversation with each of those three suppliers. Volume that previously supported a marginal relationship becomes meaningful enough to drive genuine commercial engagement.
The terms architecture that follows from this concentration should cover not just cost price, but the full commercial framework: rebates, promotional funding, exclusivity arrangements, ranging commitments, and the mechanisms by which volume growth or shortfall is shared between retailer and supplier. Getting this architecture right requires both commercial skill and analytical rigour — understanding the value of the relationship to the supplier as well as to the retailer.
Pricing Architecture and Margin Improvement
Pricing strategy affects COGS percentage indirectly but significantly. A retailer that prices to drive volume in low-margin categories, or that uses price as the primary competitive lever, will find that COGS percentage is hard to improve regardless of the cost price it pays. A retailer that uses pricing more strategically — anchoring on key value items, using private label to anchor price perception, pricing for margin in categories where customer price sensitivity is lower — can improve margin contribution without necessarily improving cost price.
The analytical work here involves price elasticity modelling at the category and SKU level, competitive price positioning analysis, and customer research that identifies where price is genuinely driving shopping decisions versus where it is less important than range, availability, or experience. The output is a pricing strategy that is grounded in evidence rather than in convention.
Private Label as a Structural Lever
Private label is the most powerful structural lever for COGS improvement in retail, and the one that requires the longest lead time. A well-managed private label program delivers margin percentages significantly above the branded equivalent, creates a ranging anchor that improves the commercial conversation with branded suppliers, and builds customer loyalty that reduces price sensitivity.
The barriers to private label development in ANZ are real — the market is smaller than comparable markets, which makes it harder to achieve the volumes that justify dedicated production runs, and the supplier base for private label manufacturing is less developed than in Europe. But these barriers are surmountable for retailers of sufficient scale, particularly in categories where the private label product experience is comparable to branded.
The investment case for private label should be built on realistic volume assumptions and realistic time horizons. Private label programs typically take two to three years to reach the point where the margin contribution is meaningful, and they require sustained investment in product development, quality management, and marketing. But for retailers with the scale and the patience to build the capability, the long-term structural impact on COGS is significant.
Working with Trace Consultants
Trace Consultants works with retailers and FMCG businesses across ANZ to improve COGS percentage through the levers described above. Our approach is fact-based and commercially rigorous — we build the analytical foundation, develop the commercial strategy, and support implementation through the supplier conversations and internal change management that make these improvements stick.
The opportunity in most organisations is material — typically in the range of 50 to 150 basis points of COGS improvement over a two to three year horizon, which at the scale of a mid-sized retailer represents tens of millions of dollars in annual margin improvement.
If you would like to understand the COGS improvement opportunity in your business, we would welcome the conversation.
Contact Trace Consultants to discuss your retail margin strategy.
