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Coles Preferred Over Woolworths: A Competitive Analysis
Coles Group Limited (ASX: COL) is emerging as the supermarket of choice, preferred by analysts from Citi over its main competitor, Woolworths. This preference is attributed to Coles’ robust sales momentum, superior online performance, and promising potential for significant capital returns by FY26.
Maintaining Sales Momentum
Citi analysts predict that Coles will continue to outperform Woolworths in like-for-like sales growth for the foreseeable future. The company’s strategic investment in automated distribution systems, such as Witron and Ocado, has greatly enhanced both the online shopping experience and product availability in stores, giving Coles a distinct competitive edge.
In contrast, Woolworths is facing challenges regarding customer trust. The retailer’s Voice of Customer Net Promoter Score (VOC NPS) was stagnant at 43 in Q3 2025, unchanged from the previous year, following a series of public relations missteps in 2024 that included controversies over Australia Day merchandise and ongoing labour disputes.
Woolworths has made efforts to regain market share by reducing prices on almost 400 products by an average of 10% through 2026, but similar pricing strategies in previous years failed to significantly boost sales or enhance customer satisfaction. Coles has responded with seasonal discounts of its own, effectively neutralising any potential advantages Woolworths might have gained from its pricing cuts.
Potential for Capital Management
Looking to the future, Citi anticipates that Coles will consider initiatives for capital management, including potential special dividends or share buybacks once its Witron and Ocado projects are completed. Given projected EBITDA growth and a reduction in capital expenditures, Coles is expected to see a notable decline in its debt-to-equity ratio. Analysts predict a capital return of approximately $1.6 billion in FY26, further increasing the attractiveness of Coles’ stock for investors.
Recovery Challenges for Woolworths
Woolworths is likely to face a more extended recovery process. Historical trends indicate that it could take one to two years for improvements in customer satisfaction to translate into higher sales. For instance, from 2014 to 2016, Woolworths lagged behind Coles in like-for-like sales before regaining momentum in 2017.
Earnings Forecast Overview
For FY25, Citi estimates that Coles will achieve a revenue growth of 1.7%, reaching $44.3 billion, alongside a 1.9% increase in EBIT to $2.11 billion. However, a decline in reported net profit by 4.2% is anticipated, primarily due to rising interest costs. Coles’ dividend is projected to grow by 3.6% to 70.5 cents per share, yielding around 3.3%.
Conversely, Woolworths is forecasted to see a more robust revenue growth of 2.5% to $69.5 billion for FY25, following weaker performance in the previous fiscal year. Nevertheless, labour disputes from late 2024 and a customer preference shift towards lower-margin items are expected to reduce EBIT by 13% to $2.79 billion, resulting in a significant 39.5% cut in dividends, from 144 cents in FY24 to 87 cents in FY25.
On a price-to-earnings basis, Coles is projected to trade at 26.4x FY25 estimates compared to Woolworths at 28.4x.
Conclusion: Investment Outlook
For investors, Coles presents a compelling combination of operational resilience and financial adaptability, while Woolworths’ recovery remains contingent upon overcoming immediate challenges. Consequently, Citi has rated Coles as a "Buy" and Woolworths as "Neutral."
This analysis underscores the contrasting trajectories of these two supermarket giants in the Australian retail landscape, highlighting Coles’ operational advantages and positioning for future growth.
