Woolworths is still our favourite grocer but pugnacious rival Coles confirmed this week it is closing the gap thanks to its year-long food price war. And the battle is far from over.
''Coles will continue to have a very strong focus on delivering value for its customers and will continue to invest in price,'' says Richard Goyder, chief executive of Coles' owner, Wesfarmers.
''Invest in price'' is company terminology for the savage price cuts on milk last year, and on fruit and vegetables this week, which has caused an uproar among suppliers.
The price cuts on selected fruit and vegetables of up to 50 per cent adds to a basket of consumer staples that have been aggressively discounted by Coles and Woolies including bread, toilet paper and washing powder. Coles says being the first mover has yielded results.
''Because Coles has been seen to lead [the price cuts], we're I think getting the benefit of more customers in our stores and certainly more price trust from our customers,'' says Goyder.
Woolworths' chief executive, Grant O'Brien, has dismissed the so-called price war as a marketing gimmick.
''To say that it's a huge reduction and a market-changer, or game-changing, is in a way, to mislead,'' says O'Brien, who also claims Woolworths is still much cheaper based on the items that are currently on special in its stores compared with Coles.
''If you take a basket of the items that are on promotion in our store compared to the items that are on promotion in Coles stores you get a 29 per cent difference in favour of Woolworths customers,'' he said this week.
''It's a great time to be a consumer, that's for sure,'' O'Brien told analysts this week.
Not that consumers are showing much gratitude.
While O'Brien was happy to talk about growth in customer numbers, he admitted this was not being matched by growth in the dollar value of goods in each customer's basket.
Deflation played a role but O'Brien pointed to spending habits at the company's petrol bowsers as an indication of how cautious consumers are at the moment.
''We've got a significant increase in customer numbers in our petrol business but we're seeing a higher incidence of people filling to a dollar amount rather than filling their tank,'' he says. ''Their method of being frugal … is to go back to what was done the last time we were in this sort of situation, which was the global financial crisis a couple of years ago.''
Goyder agreed, saying last year's rate cuts did little to alleviate the consumer gloom.
''Because of that lack of confidence generally, I'm not sure that consumer sentiment is going to change a lot. Further interest rate reductions will obviously help, but consumers are being very watchful and careful at the moment.''
Coles has a long way to go before it can hope to grab the mantle of Australia's largest supermarket operator.
Coles' sales in the core food and liquor business grew 4.3 per cent to $7.34 billion in the December quarter. Woolworths this week reported sales from its Australian supermarkets grew 4.1 per cent to $9.87 billion over the same period.
Woolworths is still expected to own 42 per cent of the food and liquor market this financial year, while Coles' share will be about 30 per cent.
Both grocers said they gained market share during the quarter but Coles has the more valid claim with comparable store sales growth more than tripling sales growth at Woolworths.
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