The supermarket price war 'is over': Woolworths, Coles and Aldi expected to end big discounts and send food costs higher as they focus on profits

By AUSTRALIAN ASSOCIATED PRESS and MAX MARGAN FOR DAILY MAIL AUSTRALIA
PUBLISHED: 09:54 +11:00, 14 February 2017 | UPDATED: 09:56 +11:00, 14 February 2017

Grocery prices rising as Woolworths and Coles ease back from discounting

Food prices are expected to remain steady or to rise in 2017, experts say

Analysts expect suppliers to put pressure on supermarkets to increase prices

Coles expected sales growth slowdown, while Woolworths’ expected to grow

The supermarket price war may be over as Coles and Woolworths ease back from aggressive discounting.

Food prices are expected to remain steady or to rise in 2017 – signalling an end to the full-blown price war that has seen prices of milk plummet to $1 a litre and aggressive cutting of other staples such as bread.

Woolworths and Coles are expected to report higher sales revenue this year after an extraordinary 2016 financial year where heavy discounting led to the supermarket sector growing at its slowest rate in 20 years, analysts say. 

‘While we believe the market will remain competitive, the risk of a price war is falling,’ UBS analyst Ben Gilbert said in a recent report.

‘No listed retailer wants a price war, with discounters and consumers ultimately the only winners.’

Woolworths invested about $1billion over 18 months to lower food prices, as it played catch up with rivals after having put profit ahead of sales growth in previous years.

In the 2016 financial year, heavy discounting led to the supermarkets sector growing at its slowest rate in 20 years

Woolworths invested about $1billion over 18 months to lower food prices, but they are now expected to rise 

Mr Gilbert said Australia’s supermarkets have pointed to more rational price investment in 2017.

The latest official retail trade figures show food prices rose 4.3 per cent in December compared to the same period a year ago.

This is expected to show up in Woolworths’ and Coles’ sales growth, which has been helped by an increase in fresh fruit and vegetable prices, Citigroup said.

Analysts also expect suppliers to put pressure on supermarkets to increase prices as the price of sugar and other soft commodities continue to rise. 

The latest official retail trade figures show food prices rose 4.3 per cent in December compared to the same period a year ago 

Coles’ parent company, Wesfarmers, is due to release its half year earnings on February 15, while Woolworths’ results are due on February 22. 

During the first quarter, Coles’ crucial comparable food sales growth slowed to 1.7 per cent, compared to 2.8 per cent in the same period a year ago.

Experts expect Coles to continue to show a slowdown in its sales growth, while Woolworths’ sales are expected to have grown, in a sign it has managed to wrest back some of its loss market share.

Woolworths comparable food sales rose 0.7 per cent in the first quarter of 2017 – the first quarter of growth in almost two years – in a sign the business is turning around.

Analysts expect the turnaround to have continued into the second quarter