David Fickling is a Bloomberg Gadfly columnist covering commodities, as well as industrial and consumer companies. He has been a reporter for Bloomberg News, Dow Jones, the Wall Street Journal, the Financial Times and the Guardian.

Australia's two dominant supermarkets seem to have been fighting the same grudge match since the days of Cain and Abel. With about two-thirds of the country's food and liquor market between them, the game was all in battling each other.

Slicing the Pie
Woolworths and Coles have about two-thirds of Australia's food and liquor market to themselves
Source: Company reports, Australian Bureau of Statistics, Gadfly calculations

Throughout the 2000s, the clear winner was Woolworths Ltd. While the Coles chain owned by Coles Myer Ltd. fell apart under erratic management, Woolworths grew net income by more than 10 percent a year for a decade.

Growing Pains
Net income grew at more than 10 percent a year for a decade at Woolworths. Then everything fell apart
Source: Bloomberg
Note: No figures shown for 2016 and 2017 fiscal years because net income fell into negative territory in FY16.

Such success has a habit of breeding complacency. After fertilizer-to-hardware stores conglomerate Wesfarmers Ltd. took over Coles in a $15 billion deal in 2007, new management set to work closing the gap by revamping stores and supply chains.

Woolworths was caught napping. For 26 consecutive quarters, the growth in food and liquor sales from stores open at least 12 months -- a key measure of retailers' ability to extract revenue and profits from their target markets -- failed to overtake Coles.

Finally in 2015, the chief executive officer who presided over this performance, Grant O'Brien, quit. He was replaced by Brad Banducci, who'd risen through Woolworths' best-performing liquor business and run the grocery stores before being appointed to the top job.

Banducci's reforms appear to be sticking. Both companies have moved toward quoting comparable food sales as opposed to food and liquor, which muddies the numbers somewhat -- but the overall picture is of a Woolworths food grocery unit that is surging back to life just as Coles is flagging.

Hot Food
Woolworths has regained its lead from Coles after years of trailing in comparable sales growth
Source: Company reports
Note: Woolworths no longer reports comparable food and liquor sales, so comparable food sales are shown from June 2016 onwards. Comparable sales are those from stores open at least 12 months, adjusted for the timing up major public holidays.

Woolworths' 6.4 percent year-on-year growth in food sales in the June quarter recalls the heady days of 2010 and 2011, when the Coles fightback was just starting to gain traction. While that pace may moderate in the coming quarters, full-year net income of A$1.53 billion ($1.2 billion) blasted through analysts' estimates of a A$1.35 billion result.

Investors wanting to take a ride on this recovery must pay for the privilege. At a forward price-earnings ratio of 20.7, Woolworths is now one of the most richly valued grocers in the world, and still faces threats from the growth of discount retailer Aldi.

Value Brands
Woolworths' blended forward 12-month price-earnings ratio has moved firmly ahead of Wesfarmers
Source: Bloomberg

Given the way these two ancient rivals tend to move in cycles, the better bet might be to wait for Banducci to rest on his laurels, and go long Wesfarmers in another five years or so.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story:
David Fickling in Sydney at

To contact the editor responsible for this story:
Matthew Brooker at