Coles and Woolworths are in a new price war - but lower grocery bills may come with a corporate cost

A NEW supermarket price-war could cut your grocery bill - but analysts warn it would also wipe $10 billion off Coles’ bottom-line as Woolworths makes a comeback.

A market analyst is warning a return of the Coles-Woolworth’s price wars threatens to damage the grocery industry, wiping up to $10 billion off Coles’ bottom-line. Picture: AAP \

A RESURGENT supermarket price-war could wipe $10 billion off Coles’ bottom-line as Woolworths makes a desperate — and so far successful — comeback.

And any Coles counter-attack could end up cutting customer grocery bills.

The Australian reports retail analysts David Errington has warned Wesfarmers needs to find a new marketing and commercial strategy for its Coles division to arrest a decline.

Australia’s $90 billion grocery economy has become an intense battleground with the arrival of several new international players.

But the first apparent victim of that invasion, Woolworths, has been fighting back.

And this has been hurting Coles.

The most recent fight has been over bread.

A few weeks ago, Coles significantly cut the amount it was charging for bread. Woolworth’s matched the new price immediately.

The tit-for-tat price move is expected to cost both players about $30 million each.

But the Bank of America Merrill Lynch (BAML) report says Coles’ once successful strategy of pushing lower prices has grown stale.

Coles has a current valuation of $25 billion, BAML’s Mr Errington says. But that could plummet to $15 billion as its once-successful push for lower prices grows stale.

Errington says Coles performance had deteriorated markedly over the past six to 12 months.

“Coles was probably overachieving due to Woolworths misfiring,” he said, and was now “not responding well” to its resurgence.

And any attempt to revisit price wars as a way to win back customer support could lead to tight times for the grocery industry.

“If Coles continues to lower prices, we see sales growth remaining at low levels and cost growth exceeding sales growth,” he said.

Woolworths has been outperforming Coles in growth since the second quarter of the 2016-17 financial year. German discounter Aldi is also proving to be resurgent in both year-on-year results, and for figures from February this year.

“But we are concerned ... toward the strategies adopted by Coles, and we see value of Coles deteriorating at a fast pace,” Mr Errington says. “Although a $10 billion drop looks substantial, if the current strategies are sustained, we think this drop could be realistic.”

See The Australian for the full report