ASX Supermarket Stocks: Woolworths is surging ahead of Coles so far in 2026! And it is no accident

The armwrestle between the two ASX Supermarket Stocks took a turn this most recent reporting season. For the past couple of years, Coles had the upper hand over Woolworths with higher margins and faster sales growth.

Compounding matters for Woolworths has been reputational damage from the dying days of Brad Banducci’s tenure and the hangover during the early days of Amanda Bardwell’s tenure even as she made efforts to turn things around and faced some obstacles like strikes. But now the tide is moving in the other direction, or at least that is what investors believe. Woolworths shares gained over 20% in the first 2 months of the year but Coles is 4% down.

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ASX Supermarket Stocks: Woolworths is pacing ahead of Coles!

The bottom line post-reporting season is that after seven straight quarters of Coles outperforming Woolworths, it was the latter that outperformed this time around. In the first 7 weeks of CY26, Coles sales grew 3.7% but Woolworths grew 5.8%. To investors, it seems this was more important than the half-yearly figures, but there were better signs for Woolworths.

Now, if you knew nothing about Woolworths’ past, you’d be forgiven for thinking the bulk of the 1H26 results deserved little more than a ‘meh’. But a lot of it was an improvement from previous periods. Woolworths’ total revenue rose 3.4% to $37.1bn, $23.3bn of which were from Australian supermarkets. Earnings were $1.66bn, up 14.4%.

The group recorded a $859m net profit, up 16%, although its statutory net profit was $374m. In New Zealand, sales rose more modestly, but rose nonetheless. Big W sales rose just 1.8% but this was better than it had been. Arguably what pleased investor the most was that Woolworths had slashed $200m in costs and planned to remove another $200m

Now let’s look at Coles. Its sales rose just 2.5% to $23.6bn while its EBIT rose 10.2% to $1.2bn. The underlying profit was $676m, up 12.5%, but its statutory profit was $511m, down 11%. There were slower sales in Liquorland (>3%) as alcohol has turned out to be more discretionary. Across the group, there was was 27% ecommerce sales growth with sales representing 13.1% of group sales. We mentioned sales rose 3.7% in the first 7 weeks of 2026, 5.3% excluding tobacco, but liquor saw a 2.5% decline.

Coles under greater regulatory scruitany

The ASX Supermarket stocks are always watched like a hawk by regulators and customers, especially in recent years with accusations of price gouging. Right now, it is Coles facing greater scrutiny with the ACCC taking action against its ‘Down Down’ campaign, alleging Coles only did so to mislead shoppers into thinking they were paying less when they were paying a higher price.

In one particular instance, Bragg Seasoning Nutritional Yeast rose from $13.20 to $19 but then cut to $16.50 4 weeks later and it was claimed to be ”Down Down’. Coles would’ve known customers would not buy if they were honest in that prices were overall going up but were instead led to believe that prices were down from $13.20 to $10 as the promotion would have implied.

Coles’ argument will be that it is down from the ‘recommended retail price’. We cannot predict which way the outcome will go, but even if Coles ultimately wins, investors won’t like hearing the toing and froing of daily barrister arguments on both sides. Of course, if the ACCC wins there will likely be a big fine, and very likely an appeal in which case this saga will drag on for many months more.

Of course Woolworths investors should be complacent given it too is facing action – ironically on more goods (266 items vs 245 products from the summer of 21-22 for several months after). The ACCC wants penalties of up to $50m for each breach or 30% of turnover at the time of the breach. Also concerning will be the new price gouging laws coming into effect on July 1 and the ACCC has promised to be watching both Woolworths and Coles closely. But given Coles was the one with the higher profile broader campaign ‘Down Down’, retail consumers will likely be more critical of any errors done by it.

The AI future?

You could also argue the AI effect is happening here in the supermarket too. It seems investors will buy into any stock announcing job cuts (like Block and WiseTech) but sell off a stock uncertain about the future. Now Coles did not go as far down as Ai-Media which fell over 30% as things were not that bad. But Coles is not quite sure what the future may hold even if Leah Weckert has some ideas, such as AI agents shopping on customers’ behalf with customers none the wiser as to whether it is Woolworths or Coles.

Remember that opinion piece from Citrini Research that spooked the markets just last week? We do, specifically one part that talked about food delivery – yes, it was talking about food delivery apps like Doordash, but we reckon it could be talking about supermarkets too. The moat that the big players have is that ‘you’re tired, you’re hungry and this is the place/app on your screen’. An AI agent does not care about brand loyalty, it just wants the best deal. In such a reality, incumbency means nothing and a big market position could easily be lost. At least Weckert isn’t in denial that things could be different and her firm will have to change…we’d take that as a positive.

Another uncertainty is whether or not Coles and Woolworths stores will still be as large as they are in a world where delivery will be dominant. Scentre boss Elliott Rusanow told his company’s investors that supermarkets would give back retail space. Weckert does not anticipate shrinking space, but changing space…this could be bad news for the company as it is paying the same but may not generate the same returns, at least if the company is competing on nothing but price with its peers.

Conclusion

The Woolworths v Coles battle ebbs and flows, but Coles is the one under the greater scrutiny right now with the Fresh Food People delivering stronger sales growth and stronger momentum in its non-supermarkets business.