WOOLWORTHS is failing to close the gap on Coles when it comes to prices.
Despite launching a $500 million price slashing strategy in May, new figures suggest Woolworths' grocery prices were still flat in the June quarter at the same time as Coles got cheaper for shoppers.
A Macquarie Securities analysis reveals the cost of a selection of everyday groceries at Woolworths stores has fallen 1.9 per cent since early March, mostly thanks to a seasonal decline in the price of fruit and vegetables.
However, Coles did even better, posting a 3.1 per cent cost decline for the same period based on the same goods.
In the same period, Coles owner Wesfarmers' online prices fell 3 per cent, Macquarie's index of Coles and Woolworths basket of everyday requirements shows.
Woolworths pricing has been consistent across online and in-store purchases since March.
Seasonal drops in the cost of fruit and vegetables underpinned grocery price falls for both major supermarket chains.
However, the Macquarie report estimates that if fruit and vegetable pricing was taken out of the equation, Woolworths' pricing would be "broadly flat" across the quarter.
The analysis suggests Woolworths needs to do more to revive its supermarket business, and quickly.
"Woolworths is rapidly losing share as their strategy takes time to implement," the report said.
"In our view, it is too soon for investors to be confident that the new management team will take the appropriate action ... given the early stage of the executive search process and time required to potentially develop a new strategy."
Macquarie estimates Woolworths has lost 1.5 per cent of market share in the past year despite broader market growth of about 7 per cent.
It's a disappointing set of numbers for Woolworths after the unexpected resignation of chief executive Grant O'Brien in June, on the back of the second profit downgrade in four months and a plunging share price.
Woolworths would not comment on the report but said it was committed to "delivering the lowest prices for its customers".
"We have invested more than $160 million in reducing prices," a spokesman said.
"For example, customers can now enjoy the same prices in-store and online, so they can take advantage of the same low prices with the convenience of home delivery or click and collect."
Woolworths' increased investment in product promotions doesn't appear to have delivered a major boost over the quarter.
The chain ramped-up promotional activity, increasing the proportion of grocery items on special from about 16 per cent to about 20 per cent.
Macquarie also has raised concerns that Woolworths' margins may be under pressure as a result of its meat strategy.
Meat prices, particularly beef, have increased sharply over the quarter. However, Woolworths appears to have decided not to pass on the cost to consumers.
Woolworths kept its meat prices steady over the quarter, compared with prices at Coles, which grew 0.7 per cent.
The low Australian dollar is driving up the cost of meat, especially beef, as overseas buyers take advantage of the improved trading conditions to buy more Australian product. The price pressure is expected to continue on the back of the soft dollar.
Coles does not appear to have done as much to contain increased meat prices.
