The supermarket war between long-time rivals Woolworths Group Ltd (ASX: WOW) and Coles Group Ltd (ASX: COL) has been going on for decades. The two supermarket giants have a duopoly over market share in Australia, accounting for around 70% of the market share combined.
Together they control prices, supplier terms, and customer behaviour more than any other supermarket in the Australian retail sector.
But when it comes to the Australian share market, I'd buy one of the supermarket shares, but sell the other.
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I'd buy Woolworths shares
Woolworths shares closed 0.78% higher at the close of the ASX on Tuesday afternoon, at $28.26 each. Over the past month Woolworths shares have climbed 8.73%, but over the year the shares are still down 4.24% thanks to a sharp investor sell-off in late-August.
At the time, the supermarket chain suffered a loss of investor confidence following a disappointing FY25 result. The company reported a 12.6% decline in its earnings before interest and tax, and a 17.1% drop in its net profit.
More recently in late-October, Woolworths revealed its first quarter sales update, providing some investor relief. It reported 2.7% growth in group sales driven by growth in WooliesX and B2B sectors.
It looks like the latest results could be a sign that the supermarket giant is well-placed to recover over FY26, and I think there is a good opportunity to buy the shares ahead of its resurgence.
Analysts are a little more reserved, however. TradingView data shows that out of 17 analysts, 11 have a hold rating on Woolworths shares and another 6 have a buy or strong buy rating. There is an average target price of $30.24. That implies a potential 7.01% upside at the time of writing.
I'd sell Coles shares
Coles shares closed 0.09% higher at the close of the ASX on Tuesday afternoon, at $22.30 a piece. Over the past month the share price has dropped 5.31%, but over the year the shares are still 25.7% higher.
The Coles share price enjoyed a 15.9% spike in late-August off the back of a robust FY25 result. It also posted a strong quarterly update in late-October where it reported a 3.9% increase in group sales. But liquor sales were down 1.1% and new legislation pushed its tobacco sales 57% lower.
It looks like Coles is positioning itself as the stronger market player, but I'm concerned that its share price has reached a ceiling and has started to correct from its peak.
TradingView data shows analyst sentiment is starting to shift too. Out of 17 analysts, 10 have a buy or strong buy rating, while 5 have a hold rating, and 2 have a strong sell rating on Coles shares.
The average target price on Coles shares is $23.83, which implies a potential 6.85% upside for investors at the time of writing.
Alto Capital's Tony Locantro is one broker who sees headwinds building for Coles shares following on its strong run. He has a sell recommendation on the stock.
Michael Gable from Fairmont Equities also recently said his team "can't identify sufficient catalysts to justify the share price".
Morgans has a hold rating and $22.90 price target on Coles shares. The broker thinks investors should wait for a better entry point before buying.
