Coming second is not an option in grocery war
In Australia's great supermarket war it remains game on. Competing is in the protagonists' corporate DNA and after another round of sales performances Coles remains a clear winner over Woolworths.
And no matter how well Woolworths increases sales, it will be the loser when it runs second to Coles.
Woolies' chief executive, Grant O'Brien, often denies the contest exists. He says when running his business it's all about Woolworths versus Woolworths.
Sure, he needs to ensure he improves on his own company' s results, but beating the competition has to be every bit as sweet.
No matter which way they're spun, the numbers don't lie. In the food and liquor sectors (and measuring like-for-like stores) in the three months to December 2012 Coles sales rose by 3.9 per cent and Woolworths sales rose 2.5 per cent.
The gap between the two might be a bit slimmer when the profit numbers come in, but right now Coles has maintained the lead it established in the first quarter of 2010 - which was about a year after Wesfarmers bought the retail conglomerate, which also contains Kmart, Target, and Officeworks.
The message from Woolworths company briefings is that it has devised a breakaway strategy - one differing from that of Coles.
There was lots of discussion about how this breakaway strategy was going to improve the loyalty of Woolworths shoppers - the company's holy grail.
Back to how this works a bit later on. The big message from Woolworths was that it had already started to get some traction. Although Coles improved sales, Woolies was closing the gap.
In the latest quarter Coles's growth was 140 basis points ahead of that of Woolworths. It was 140 points in the quarter before that and 270 basis points behind it in the quarter before that one. It could be a bit of a trend but 18 months ago the gap was a more narrow 120 basis points.
Thus the lead moves around a bit - and probably a bit too much to declare yet that Woolworths is definitely on the come back.
The history over the past decade was that, until 2008, when Wesfarmers bought the Coles group, Coles management just attempted to follow the Woolies strategy. Over the past five years under the new management, Coles took a new direction and Woolworths followed it.
That their strategies are now diverging is a new phenomenon.
It involves finessing the marketing and promotion strategy, and spending. Woolworths has spent a lot of capital to mine its customers for data and capture their loyalty. A major part of this was to team up with the Qantas frequent flyer program through the Everyday Rewards scheme.
Woolworths now has a more intimate understanding of its individual customers and their habits and spending patterns. Thus it can target its promotional offers in a more refined and cost-effective way. This is not about reinventing the wheel.
Woolworths is mimicking Tesco which pioneered this strategy to great effect in Britain.
The idea is to offer bonuses to particular groups, based on income, spend or needs, rather than using a blanket approach.
Where Coles has offered its shoppers an 8¢-per-litre discount voucher on fuel over an extended period, Woolworths will offer this only in peak pump times, such as the back-to-school and back-to-work periods.
Woolworths will reward some of its customers with gift vouchers if they spend a certain minimum amount over a certain number of weeks. Gifts for some, discounts for others and less wastage overall.
Whether this more targeted approach will allow Woolworths to use its promotional budget more effectively will be better demonstrated when its profits are next released.
There is nothing to stop Coles from pirating the Woolworths loyalty strategy if it works.
Coles also engages in loyalty programs and mines data from its customers.
It is understandable why loyalty is the new black in the supermarket space. Only 16 per cent of Australians are completely loyal to their grocery store. Woolworths noted on Thursday that it has more than 20 million customers a week. Even accounting for repeat customers, once you take those too young or too old or too disinclined to shop out of the equation, it's pretty clear that most of the grocery shopping population visits a store every week. And equally most would also shop at Coles.
Thus enticing the high-quality customer into making a big weekly spend is fundamental to success.
Coles and Woolworths both say they have increased market share, but then so do Aldi and Costco.
Sales and profits from both of the major supermarket chains are improving so there is nothing to cause investors concern.
Indeed, both groups are trading on price earnings ratios of between 15 and 20 times - well ahead of most other companies listed on the Australian Stock Exchange that offer reliable earnings.
They are a safe yield bet for cautious investors looking for something sexier than bonds.