Coles's Multi-Year Win Over Woolworths May Be Largely Played Out

Years of supermarket wars outperformance narrowed as Woolworths sharpened its execution, prompting some fund managers to rotate even as Coles's margin story continues.

31 Aug 2026 · 3 min read

Coles Group delivered years of outperformance over rival Woolworths before that lead narrowed through 2026, prompting Alphinity Investment Management to switch its preference to Woolworths after 18 months and other fund managers to debate whether Coles's supermarket wars victory has largely played out, even as its margin expansion story continues.

Margin expansion continues, but the growth mix is shifting

Pendal Group said Coles's March result showed EBIT and net profit in line with consensus, with Supermarkets EBIT up 14.6 percent as gross margins expanded and supply chain duplication costs rolled out of the profit and loss statement, though nearly all sales growth is now coming from margin-dilutive online channels, requiring the company to keep lifting gross margins elsewhere to compensate.

A rotation out of Coles, into Woolworths

Alphinity Investment Management said it switched its preference from Coles to Woolworths after 18 months, arguing research suggested Coles had already seen its gains priced in, while Woolworths was just beginning a new growth phase under fresh leadership, with Coles shares falling more than 7 percent after its forecasts were downgraded. Paradice Investment Management reduced its position as the sales growth gap relative to Coles's key competitor narrowed.

Research suggests Coles had already seen its gains priced in, while Woolworths is just beginning a new growth phase under fresh leadership.

— Alphinity Investment Management, Article, March 2026

Others see value in the de-rating

Ten Cap added to its Coles position as the valuation de-rated to more attractive levels with potential earnings upside, pointing to cost-of-living pressures driving increased in-home consumption, higher supermarket foot traffic and some pantry-stocking behaviour. Airlie Funds Management established a new position, placing Coles in its defensives bucket, making up 17 percent of the portfolio, where it has weighted defensive exposure toward inexpensive defensives while avoiding stocks like Telstra and Woolworths that had re-rated to all-time-high multiples.

The supermarket wars debate reaches a verdict of sorts

First Sentier Investors described Coles as a centre back alongside Wesfarmers, expecting good teamwork between the two, with CEO Leah Weckert deploying a great strategy that keeps winning market share from independent grocers while keeping Woolworths honest. Plato Investment Management held at hold, acknowledging Coles has done well winning the supermarket wars over Woolworths for the past three years, but believes Woolworths has picked up its act over the last six to twelve months, leaving the thesis of Coles outperforming its rival largely played out. Investors Mutual Limited agreed, holding at hold and noting Coles has closed the gap to Woolworths by addressing availability and improving online fulfilment through its Ocado partnership, though it expects margin improvement to moderate from here even as sales growth continues. Alliance Bernstein said its overweight position contributed as investors rotated into defensive domestic earners during a volatile month, with consumer staples benefiting from resilient household demand.

Coles have been winning the supermarket wars over Woolworths, but we think Woolworths have picked up their act a bit in the last six to 12 months. So we think that thesis of Coles outperforming Woolies is largely played out.

— Plato Investment Management, Article, June 2026

August's result: capex running hot, but margins hold up

Ausbil Investment Management stayed underweight on valuation grounds, noting Coles's capital expenditure is running ahead of market expectations as it expands and upgrades stores, though management has outlined a two-year program with a clear path to margin improvement, and both volumes and margins held up better than the market had priced in. Pendal Group said the stock rose 4.3 percent after an FY26 result in line with expectations, benefiting from lower than guided depreciation, with fourth-quarter sales growth softer than expected, though fears of significant disruption from Woolworths's successful Ooshie promotion in July were avoided, with the trading update suggesting sales growth is holding up.

What fund managers say they are watching next is whether margin expansion continues as the online sales mix grows, delivery of the two-year capex program's promised margin improvement, whether the supermarket wars pendulum swings back toward Woolworths given its recent momentum, and whether Coles's Ocado-powered automated fulfilment keeps closing the online gap with its rival.