Woolworths is ramping up the supermarket price war with rival Coles to win back sales and said that prices are going to come down in an ominous warning to suppliers’ margins. The move comes after the retailer posted weak 1.7% same store sales in supermarkets and liquor, a big dip in petrol sales, but strong merchandise sales in convenience stores for the first half.

“We are not satisfied with our sales performance and are taking action through investment in our Australian Supermarkets business to maintain our leadership position and restore sales momentum,” Woolworths CEO Grant O’Brien said.

This will be funded in part by a pipeline of cost savings in excess of $500 million, Woolworths said.

Woolworths posted total sales of $32.4 billion up 1.8% for the 27 weeks to January 4, 2015 and a net profit of $1.28 billion, down 3.1% on the previous corresponding period. The result was impacted by increased losses from its Masters home improvement operations.

Food & Liquor sales grew 3.4% to $22.2 billion, with same store (comparable) sales up 1.7%. Total petrol convenience sales were down 9.8% to $3.306 billion, while total liquor sales rose by 4.0%.

Petrol sales and volumes were impacted by declining average fuel sell prices and changes to the Caltex-Woolworths alliance and the undertaking given to the ACCC to limit fuel discounts to customers.

Comparable petrol sales dollars fell 6.6% and volumes 3.4%, while convenience store merchandise sales jumped 9.4% and same store sales grew 6.2%, reflecting improved ranging and more effective promotional activity, Woolworths said.

Following the resignation of Tjeerd Jegen, Brad Banducci was appointed as managing director, Australian Food and Liquor, while Dave Chambers was appointed director, Woolworths Supermarkets, reporting to Mr Banducci.

Countdown Supermarkets continued to deliver profit growth despite price deflation and ongoing subdued grocery market conditions in New Zealand, with sales up 2.9% to NZD$169.1 million.

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