Australian consumers are expected to benefit again from the renewed price war between supermarket giants Coles and Woolworths with price cuts of up to 50 per cent on certain fruits and vegetables.

The deep discounts would follow recent price battles between the two retailers that focused on milk, bread, toilet paper and washing power in the past 12 months. The items to go on sale include tomatoes, peaches, carrots and rock melon.

Greg Davis, general manager for fresh produce at Coles, explained the lower prices of fruits and veggies to the grocer's investment in new growing techniques, quality control and in-store displays. A Coles spokesman added that by providing growers a commitment to buy as much of their produce, the retailer provides them certainty of a market for their fruits and veggies which leads to lower prices.

However, AusVeg spokesman William Churchill said the price war between Coles and Woolworths places pressure on non-Coles suppliers who would be forced to match their lower prices for other grocers. He forecast that the fight would turn savage. AusVeg National Marketing Manager Simon Coburn opined that Woolworths would match Coles' price cuts which would be bad for their members.

"The issue is whether these retailers are going to be absorbing the costs themselves, which is pretty unlikely, in which case these discounts will be passed on to the growers to absorb and that's not sustainable at all," The Australian quoted Mr Coburn.

Woolworths declined to comment if it will also reduce its vegetable and fruit prices, but explained the falling prices of fresh produce to the large quantity available in the market.

On Tuesday, Woolworths registered a 5 per cent increase in its six months sales of $29.7 billion compared to a year ago. The boost in sales was powered by a 5.6 per cent growth at the company's supermarket division and 16.4 per cent hike at its home improvement division.

Woolworths Chief Executive Grant O'Brien explained the improved figures to more shoppers, including during Christmas. Woolworths averaged 19.3 million customers a week during the six-month period which resulted in higher market share, basket size and items sold.

Tjeerd Jegen, Woolworths director of Australian supermarkets and petrol, observed that while the trading environment continued to be tough due to ongoing deflation across key product categories, it was worsened by continued spending caution among shoppers.

Meanwhile, Woolworths announced it will close up to 100 outlets of electronics chain Dick Smith over the next two years. The move would remove a $300 million provision on the division that uses $400 million capital. The provision includes items such as goodwill on stores brand purchase, inventory, stores leases and merchandise.

Mr O'Brien, however, allayed fears of Dick Smith employees of a mass lay off since Woolworths has 2,000 vacancies that would partly be filled by workers from the soon-to-be-closed electronics stores.

The planned closure has angered Australian entrepreneur Dick Smith, who founded the electronics chain. Mr Smith said he fears that the store could be sold by Woolworths to foreign owners which would be an indicator that foreign firms will continue to gain a larger share of the Australian retail market.

"When you want endless growth only the biggest survive.... Little Australia won't have any ownership at all," he told the Herald Sun.

However, Mr Smith agreed there is not much alternative left for Woolworths except to sell the electronics store.

RELATED STORIES