This study examines the relationship between retail assortment size and category sales in FMCG settings using weekly panel data from Spanish hypermarkets and supermarkets over a 24‐month period, specifically focusing on the beer product category. Employing both static and dynamic econometric models—specifically, fixed-effects and Arellano–Bond approaches—the analysis uncovers an inverted U-shaped relationship between assortment size and sales, indicating diminishing returns beyond an optimal threshold. The results further demonstrate significant dynamic effects, with past period sales exerting a strong influence on current demand. Notably, the sensitivity of sales to assortment size is more pronounced in supermarkets compared to hypermarkets, reflecting differences in consumer behavior and store format constraints. These findings contribute to our understanding of assortment elasticity and offer actionable insights for retail category management. Retailers can benefit by tailoring assortment strategies to store format and product characteristics, thereby optimizing SKU mix and mitigating potential negative effects such as consumer overload and internal cannibalization.