Sales growth at Coles continues to slow as the supermarket giant competes with Woolworths' aggressive price cuts and Aldi's expansion.
Food and liquor sales at Coles and its associated bottle shops rose 1.2 per cent to $7.6 billion in the 12 weeks to March 26, while comparable sales, which accounts for changes to store numbers, edged 0.3 per cent higher.
Even after adjustments made for the timing of Easter, which was in March in 2016, comparable sales growth for the third quarter was significantly weaker than the 4.9 per cent growth in the same period a year ago.
The continuing trend of shrinking comparable sales growth - 0.9 per cent in the second quarter and 1.8 per cent in the first - is a sign of the toll the discounting war is taking on Coles and a possible indicator that it has lost customers to Woolworths and Aldi.
Woolworths, which poured more than $1 billion into lowering prices in a year, reported stronger sales growth than Coles for the first time in eight years in the first half.
Richard Goyder, the chief executive of Coles owner Wesfarmers, said he believed Coles could return to stronger sales growth as Woolworths price cuts ease.
"We are confident as we cycle against the national rollout of Aldi and the really significant price investment Woolworths has made over the past 12 months that we will see those growth numbers return to the business," he said.
Mr Goyder said he was less concerned about the impact Amazon - which has recently confirmed it is coming to Australia - will have on supermarket food sales than other retail sectors.
Coles has also continued to reduce the number of price specials, which Mr Goyder said breeds distrust from shoppers, in favour of "everyday low prices".
Target continues to weigh on Wesfarmers, with the discount department store's comparable sales falling 17.9 per cent in the quarter, as an overhaul of the business continues.
Kmart's comparable sales fell 0.3 per cent, while Bunnings continued to shine, with comparable sales up 6 per cent.
Wesfarmers' convenience store division, Coles Express, was disappointing with comparable sales down 0.8 per cent and comparable fuel volumes down 22 per cent.
The company is still looking to sell Officeworks, which achieved a nine per cent sales increase.
Shares in Wesfarmers fell 1.5 per cent on Thursday to $43.30, as Macquarie analysts said Wesfarmers' retailers produced a generally weaker result across the board, with particularly poor outcomes from its convenience division and discount department store chain Target.
"The growth environment is tough currently and as a result there are only a couple of strong positive comparable growth performances in this result," Macquarie said in a report on Thursday.
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