WOOLWORTHS is to counter a discounting blitz by rival Coles by walking away from costly promotions at its Big W stores and pouring resources into improving its supermarket fresh food and groceries offering.
It is hoped early signs of an uptick in consumer confidence will help drive sales at the checkout.
Combined with its liquor division, Dan Murphy's, and a growing online business for its supermarket products - albeit from a small base - Woolworths believes it can refocus on its core activities.
This reorientation has already resulted in the company divest itself of its struggling Dick Smith electronics business last year and retreat from India.
"[We are] fixing some of the fundamentals of our business. The performance of our packaged [grocery] goods . . . has been a particular focus and while we have seen improvement, it's not where it needs to be yet," said Woolworths chief executive Grant O'Brien.
He said consumers were showing signs of improved confidence leading into Christmas with some of that sales momentum at its Big W operation flowing into January.
The more bullish view on consumer confidence matches comments from Wesfarmers boss Richard Goyder, who this week said shoppers were spending again.
The Wesfarmers-owned Coles has stolen the performance limelight from Woolworths for the last 15 quarters, beating its larger supermarket competitor in same-store sales growth and winning customers with its headline-grabbing offers of $1 a litre milk and steep discounts on basic food items.
That outperformance was again on show this week.
Woolworths said its flagship food and liquor business had posted a 2.5 per cent increase in second quarter same-store sales to $10.3 billion. Total sales, which include new store openings in the period, were up 4.8 per cent.
On Wednesday, Wesfarmers said December quarter same-store sales at Coles had risen by 3.9 per cent for its supermarkets, easily eclipsing Woolworths. Coles reported total sales rose 5.2 per cent for the period.
Mr O'Brien, who took over as chief executive from Michael Luscombe in October 2011, said he wasn't distracted by the comparison with Coles, saying it was about "Woolworths versus Woolworths".
He described Woolworths' third consecutive quarter of improved sales growth as "steady momentum" but said his executive team had plenty of work ahead of it.
"We have a lot to do . . . the strategic priorities we put out in 2011 were exactly that and they are not going to be solved in financial year 2013. The short answer is I'm happy where we are today and excited about what's in front of us."
Woolworths Australian supermarket boss Tjeerd Jegen said the second quarter was particular pleasing with a strong December.
"Sales across each of our fresh departments exceeded expectations with the produce, seafood and meat departments performing well, and a great customer response to our 'Xmas Fresh Fairs' [promotion]."
December was also good for Big W, although a decision to dump a costly promotion in November, as well as price deflation in some categories, saw Big W report a 1.4 per cent drop in same-store sales for the quarter. This was a turnaround from the 3.4 per cent growth in the first quarter. For the first half of 2012-13, Big W had a 3.6 per cent lift in total sales and a 0.7 per cent gain in comparable sales.
Woolworths' hardware division, Danks, suffered a setback as its product offering was reviewed. There was also dampened demand for building materials. Sales figures for that business were not released.
Its Masters retail hardware arm posted a 54.6 per cent lift in half-year sales to $637 million, while for the second quarter sales were up 48.2 per cent to $332 million.
It opened 10 stores during the half.