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Woolworths’ chief executive says consumers have been leaving champagne on the shelf in favour of sparkling wine in a sign that rising living costs contributed to a disappointing first half for the supermarket giant.

Net profit edged one per cent higher to $979 million but food sales growth lagged that at rival Coles and drinks unit earnings fell 6.4 per cent as liquor chain Dan Murphy’s was hit by poor weather around the Melbourne Cup and the timing of New Year’s Eve.

Chief executive Brad Banducci acknowledged the impact on customers of fuel costs and mortgage repayments – which have risen due to lenders’ out-of-cycle rate hikes – and flagged a subdued environment for the foreseeable future.

‘If a customer or a family spends $110 to $120 on food at Woolworths or another grocers every week, the cost of their fuel and then their mortgage are their second two biggest expenses,’ Mr Banducci said.

‘The housing price issues, how that manifests in mortgages is something we will all watch with interest over the next half.’

Mr Banducci said Dan Murphy’s was the most exposed of the Woolworths businesses when customers trim discretionary spending.

With aggressive expansion off the table due to Dan Murphy’s market penetration, Woolworths believes improved localised ranges can help boost organic growth at the chain.

‘Getting the right range into the right store is more important than ever and we need to do that with Dan’s,’ Mr Banducci said.

Comparable food sales at Australian supermarkets for the 27 weeks to December 30 grew 2.3 per cent, down from 4.9 per cent in the prior corresponding period and lower than the 3.0 per cent reported on Tuesday by Coles.

Woolworths cited a weaker-than-expected first quarter due to its removal of single use plastic bags and Coles’ Little Shop promotion to lure families.

It regained its sales growth lead in the second quarter with a 2.7 per cent improvement, and said it has gained further momentum over the first seven weeks of the second half.

Total sales across the group grew 2.3 per cent to $30.59 billion, with Big W a relative bright spot after years of poor performance.

‘While the first half was below our financial expectations, we made progress in a number of important areas,’ Mr Banducci said.

Woolies’ shares fell as much as 6.5 per cent in early trade as the negatives for investors seemed to outweigh confirmation that up to $1.7 billion from the sale of its petrol stations would be returned to shareholders.

The stock hit a two-month low of $28.30 and, at 1419 AEDT, was still down 5.2 per cent at $28.68.

WOOLIES’ WEATHER WOBBLE

* H1 net profit up 1.0pct to $979m

* Sales up 2.3pct to $30.59b

* Interim dividend up 2.0 cents to 45 cents, fully franked