WOOLWORTHS will counter a discounting blitz by rival Coles by walking away from costly promotions at its Big W stores and pouring resources into improving its fresh food and groceries offering.
It hopes early signs of a rise in consumer confidence will help drive sales at the checkout.
Combined with its superior liquor division - Dan Murphy's - and a growing online business for its supermarkets arm, Woolworths believes it can push through a strategy to refocus on its core activities. This strategy saw it divest its 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 the chief executive of Woolworths, 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 the Wesfarmers managing director, Richard Goyder, who this week said shoppers were spending again.
The Wesfarmers-owned Coles has stolen the limelight from Woolworths for the past 15 quarters, beating its larger competitor in same-store sales growth and winning customers with its headline-grabbing offers of $1 a litre milk and other 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 includes 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 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 the 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". "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' supermarket boss, Tjeerd Jegen, said the second quarter was pleasing, with a strong month in December. "Sales across each of our fresh departments exceeded expectations, with the produce, seafood and meat departments performing well."
December was also a good month for Big W, although a decision to dump a costly promotion in November as well as price deflation in some categories saw it report a 1.4 per cent drop in same-store sales.
Woolworths' hardware division Danks suffered a setback as its product offering was reviewed though sales figures for that business were not released. Its Masters arm posted a 54.6 per cent rise in half-year sales to $637 million.