Coles Group Ltd (ASX: COL) shares fell around 2% on Thursday morning despite posting another strong quarterly update that once again outpaced rival Woolworths Group Ltd (ASX: WOW) in supermarket sales growth. Investors appeared to focus on margin pressure and lingering softness in liquor rather than the underlying strength of the result.
For the 13 weeks to 28 September 2025, Coles reported total group sales of A$10.96 billion, up 3.9 % on the prior year. Supermarket sales rose 4.8 % to A$9.97 billion, with comparable sales up 4.6 %. That compares favourably with Woolworths' Australian supermarket sales growth of 2.1% and same-store growth of 1.6 %, extending Coles' continued outperformance over Woolies to a seventh straight quarter.
Excluding tobacco, Coles' sales jumped 7%, helped by strong private-label momentum, where Coles Finest revenue surged 15%. There were further gains in e-commerce, with online supermarket sales rising 27.9%, bringing digital penetration to 13.3% of supermarket sales.
Liquor, however, remained under pressure, with sales down 1.1% as consumers continued to trade down to cheaper alternatives. Still, Coles has pushed ahead with its "Simply Liquorland" rollout and a price match promise.
New tobacco legislation and the expansion of the illicit market contributed to a 57% drop in tobacco sales, reducing the category to under 2% of total sales. Inflation across fresh produce eased thanks to abundant supply, although higher beef and lamb costs weighed on margins.
Coles CEO Leah Weckert said the company's focus on "value, quality, and customer experience" continued to resonate with shoppers, with product availability at its highest level since before COVID-19.
Image source: Getty Images
Broader context
Even after Thursday's decline, Coles shares are trading at $22 and are up roughly 17% so far in 2025 on the back of consistent market-share gains versus Woolworths. Coles pays a healthy dividend too, at a fully franked yield of approximately 4%. Overall, it has been a strong performer this year.
So what has contributed to these strong returns?
I think Coles' ongoing strategy is starting to show real depth. The retailer has leaned into its value positioning without sacrificing quality. It has expanded its private-label offering and improved on-shelf availability whilst also building a stronger digital ecosystem. These initiatives are quietly reshaping Coles from a traditional grocer into a modern retail platform with deeper customer engagement and better data-driven insights.
At the same time, the competitive dynamics for Australian supermarkets are shifting. Consumers are becoming more price-sensitive, but Coles' ability to combine scale with accessibility and value gives it an edge that few can replicate. While discounters like Aldi continue to nibble at the edges, Coles' breadth of range, nationwide logistics, and increasingly efficient online operations put it in a strong position heading into the crucial Christmas trading period.
Foolish Bottomline
Coles continues to grow faster than Woolworths, and it is clearly strengthening its competitive position. It's positioning itself as the cheaper alternative, but with the scale that other market players like Aldi will find hard to match. The share price reaction reflects lofty expectations more than weak performance, but beyond that, it's looking great for Coles.
