Coles plans to spend more than $21 million to open a shopping centre in Coburg to counter rival Woolworths in the area.
The development in Gaffney Street is expected to drain millions of dollars from its competitors but will likely come at the cost of closing at least one of Coles' own outlets nearby.
Coles has applied for a zoning change and planning permission to build a $15 million mixed-use "Neighbourhood Business and Retail Centre" on the corner of Gaffney and Sussex streets.
The mooted project would include a full-line 4000-square-metre Coles supermarket, 1200 sq m of shops, 760 sq m of office space and a medical centre.
In an economic impact assessment tendered to Moreland council on behalf of Coles, MacroPlan Australia said the centre could expect to generate $33.3 million in sales a year and create about 230 jobs.
Approval for the development would mean Coles had three stores in the surrounding trade area, compared with one for Woolworths and one for IGA.
But the creation of the centre could lead to closure of the ageing Coles store next to the Coburg railway station, the report said.
MacroPlan found that store was "under trading" due to negative perceptions on its former use as a Bi-Lo outlet and the "high quality" Woolworths supermarket nearby.
A Coles spokeswoman said "no decision" had been made about the future of the existing stores. "It's early days and the proposed plan to consolidate the two Coles stores located on Sydney Road and Waterfield Street is still under review," she said.
The report also noted the Coles-anchored centre would cause an estimated 13.7 per cent revenue loss - $3.7 million a year - for its competitors in the area.
"Customers always benefit from increased competition," the Coles spokeswoman said.
Coles and Woolworths are locked in a struggle over market share, offering cut-price milk, bread and beer to boost sales.
The fight has spilled over into the property sector where both have been rapidly expanding and jockeying to keep control over sites in key areas.
Last month, Fairfax Media revealed that Coles used a company in the tax haven of the British Virgin Islands to secretly buy a building in the Sydney suburb of Neutral Bay occupied by one of the best performing Woolworths in the country.
Coles Group Property Developments bought the 17,500 square metre site at 180-196 Gaffney Street for $6.297 million in mid-2010.
The property was previously leased to fellow Wesfarmers subsidiary Bunnings but was vacant for about three years after Bunnings moved to elsewhere on Gaffney Street. The building then burnt down.
Public submissions on the planning permit and proposed change to zoning close on May 3.
Meanwhile, developer Lend Lease has listed for sale the site of the only full-line supermarket in Docklands with an asking price in excess of $14 million.
Woolworths occupies 2735 square metres of the Merchant Street property on a 20-year lease that began in 2008, according to Colliers International.
There are also two kiosks of 50 and 90 square metres respectively and space for 120 car parks.