Trolley-filling family shoppers are returning to Woolworths, rewarding the supermarket for spending more than $1 billion cutting prices and improving customer service.
The supermarket revealed on Tuesday that its rate of growth has shot ahead of arch rival Coles, reporting comparable food sales ticking up 4.9 per cent for the first three months of the financial year, compared to the 0.3 per cent growth Coles handed down last week.
Woolworths said it was able to increase food sales to $9.63 billion in the 14 weeks to October 1 - a 4.7 per cent jump in gross numbers - despite cheap tomatoes, lettuce and berries dragging grocery prices down 2.4 per cent in the quarter.
Sales were buoyed by a 4.6 per cent jump in the number of transactions, while basket size - a measure of how much shoppers bought - grew 1.4 per cent.
"One of the areas we've been struggling in??? has been the big basket family," Woolworths' chief executive Brad Banducci said.
"We've been very focused on that customer and slowly we're starting to get a few more of them into our stores.
"It's still very early days - I'd hardly declare victory, but we're starting to see some movement which is pleasing."
After pouring more than $1 billion into cutting prices and service over the past two years, Mr Banducci said Woolworths was now competitive with Coles but still had work to do improving how shoppers perceived the two supermarkets.
Cutting the price of everyday items - especially baby and lunch box products - had attracted family shoppers, and skewing staff hours more heavily towards the weekend also helped lure in that lucrative segment which typically shopped on Saturday afternoon or Sunday.
Big W 'pleasing' improvement
Woolworths said there were signs of improvement at its troubled Big W discount department stores, reporting sales growth for the first time in a number of quarters.
Total sales were up 2.5 per cent to $890 million compared to the same period last year, when they fell 5 per cent. Comparable sales were up 2.1 per cent.
The improvement at Big W - which ran at a $150 million loss last financial year - was driven by the launch of new range of low-priced private label products, which had been well received by shoppers.
Citi analysts Bryan Raymond said that while Big W's profitability would be lower because of price cutting and clearance, an improvement in the chain's foot traffic and basket size was "a key step towards a sustainable recovery".
Liquor sales at Woolworths' BWS and Dan Murphy's chains grew 3.8 per cent to $2 billion in the first quarter - a jump of 3.3 per cent in comparable terms, which strips out the impact of opening or closing stores.
The liquor market remained "competitive" but promotional campaigns and major sport events drove growth in market share, Woolworths said.
Bank of America Merrill Lynch David Errington said the result was "the best set of Woolworths numbers I've seen probably in 10 years" but questioned when shareholders would start to reap the rewards.
Woolworths' dividends have shrunk in recent years as the company spent heavily to improve supermarket service and cut prices to regain ground lost to Coles.
The company's total rate of return - which includes dividend payments and share price appreciation - since January 2015 is 6.62 per cent compared to 16.47 per cent at Coles' owner Wesfarmers.
The ASX200 has returned 18.68 per cent over the same period.
Mr Banducci said Woolworths was aware investors were expecting improved returns and was "working on it".
Coles last week handed down its weakest sales figures in eight years, which it blamed on fruit and vegetable price deflation caused by favourable growing conditions, and the impact of Woolworths cutting prices.
Total sales across the Woolworths group grew $513 million from the same period last year to $14.5 billion.
Woolworths shares closed up 58??, or 2.2 per cent, at $25.88 on Tuesday.
