The retailer, which has 1,100 stores in the UK, said the business improvement opportunity (Bio) system, from software firm Teradata, will allow category managers to make product decisions based on factors such as whether the item encourages high-spending consumers to shop in the store, as well as straightforward sales figures.
By improving the product selection, or "range analysis" process, and cutting lines that are performing poorly, Co-op should make significant savings, said Martin Willcox, data architecture manager for the company.
"By reducing our product range by just 1% we would save £850,000 on inventory costs," he said. "And this is just a conservative estimate - we expect savings to run into millions."
The Bio system will allow Co-op to analyse customer behaviour and focus products on those shoppers that are the most profitable, explained Willcox.
"About 20% of our customers - a segment we call 'variety shoppers' - drive 70% of our revenue," Willcox said.
"The system allows us to analyse baskets and find out which products are driving value, even if they are not profitable in themselves." Willcox used the example of premium cheese - it does not have great margins, but people who buy it usually spend more elsewhere in the store.
The Bio system is a substantial improvement on Co-op's previous, paper-based range analysis manual, which told category managers how to order and delete products but did not help the decision-making process, added Willcox.
"If you simply make product decisions on sales figures where do you stop?" he said. "It does not take into account different store sizes and various knock-on effects, such as the effect on sales of related products."
Co-op is also looking at exploiting Teradata's data warehousing technology to improve seasonal product tracking and promotional planning.