Coles escalates war with Woolworths

THE supermarket wars are showing no sign of cooling as Coles accelerates its discounting on key grocery lines to outpace Woolworths, according to a new analysis.

But shoppers could suffer “promotional fatigue” as prices are continually slashed, says Ben Gilbert, an analyst at investment bank UBS.

Surveys of prices suggested Coles was “repositioning prices lower”, and had stepped up its investment against its main rival. The UBS study of about 1.5 million prices from January to August reveals Coles’ year to date prices have fallen at a faster rate, quarter on quarter, than Woolworths’.

Prices at Coles supermarkets were down 1 per cent in the third quarter and 2 per cent in the fourth quarter compared with Woolworths, which has had little to no change.

“This leads us to ask: Is Coles accelerating its investment vs. Woolworths or just catching up,’’ Mr Gilbert said in a report to UBS clients yes- terday. “We believe it is the latter, consistent with Coles’ commentary and [we] continue to see the market as competitive but rational. Coles’ price investment is increasing, while Woolworths is more aggressive in fresh (food).”

Renewed hostilities in the supermarket wars broke out this year after Coles was forced to respond to Woolworths investing more than $1 billion in lowering its own prices and improving its in-store experience for shoppers.

Last year delivered the low- est rate of annual growth in the Australian grocery market for more than 30 years.

The massive Woolworths investment was itself a reaction to years of intense price competitiveness from Coles, which captured the headlines on Australia Day six years ago when Coles shocked Woolworths — and some shoppers — with an offer of milk at $1 a litre. It was the beginning of a supermarket war that was soon fought across many fronts, with prices slashed for most grocery categories.