Supermarket giant Woolworths has admitted the roll out of its new plastic bag policy is hurting its bottom line.
Sales growth in its food division slowed to 1.3 per cent in the first seven weeks of the new financial year, as the gap between it and rival Coles narrows.
Woolworths CEO Brad Banducci told SBS News, the phasing out of single use plastic bags has been challenging.
"Much harder than many of us had anticipated but we're all getting in the rhythm now," Mr Banducci said, adding it was an environmentally friendly move.
"We're not in the business of selling plastic bags, we're in the business of selling food. It never was a money making exercise and given the transition pain it certainly isn't in the current environment."
Mr Banducci said Woolworths is now looking to reduce plastic across its business.
"We've also said that we are phasing out plastic straws from December and that's a big move for us and we're looking at how we can plastic we can take out of everyone of our departments, and making sure we put recycling programs back into place," he said.
Rival Coles, has been slower to go single-use plastic shopping bag free.
In a telephone conference last week, Coles boss John Durkan said the move has been immaterial to its bottom line.
"In terms of effect on sales it's been neither plus nor minus over the period," he said.
At Woolworths, lower fruit and vegetable prices have also hit recent sales along with competition from Coles, which has taken some customers with its successful little store toy promotion.
"Free plastic toys and plastic bags, that's not us," Mr Banducci told SBS News.
"We're very focused on working on our sustainability credentials."
Early last year however, Woolworths held its own plastic toy promotion, giving away collectible plastic Marvel Super Discs.
Despite the recent slowdown, the company reported a better than expected $1.7 billion profit for the full-year, up 12.5 per cent.
A new petrol alliance along with earnings growth in its Australian food division fueled the result.
There was also growth in its drinks and hotels business, but its Big W unit has been slow to turnaround.
Investors will receive a total dividend of $1.03 per share, a near 23 per cent increase, which includes a special dividend of 10 cents per share.
The company notes, the drought is also having an impact on its regional operations, and says it is doing what it can.
"We're very committed to supporting our farmers, and we've done that with rural aid and sponsoring Buy a Bale as well as co-raising money with our customers," Mr Banducci said.