Forget the traditional Saturday morning trip to the supermarket. Coles and Woolworths are now vying for your artificial intelligence-fuelled spending.
As the nation’s two biggest supermarket chains jostle for the coveted grocery crown, they also face a growing threat from online retail behemoth Amazon, which recently started distributing fresh groceries in Australia thanks to a newly-inked deal with NSW-focused Harris Farm Markets.
Locally, Amazon earlier this month unveiled the next generation of its AI assistant Alexa, which promises to build shopping lists, alert shoppers to price drops, as well as check the availability and price of their preferred brand. In the US, it has Alexa for Shopping, which has similar features.
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Amid this increased competition, Coles and Woolworths are ramping up their use of AI tools to power the next phase of online sales growth.
Online now makes up 13.6 per cent of total sales at Coles and 15.9 per cent at Woolworths — a proportion expected to keep rising.
Coles chief executive Leah Weckert this week said younger consumers, particularly young families, were increasingly using AI tools to do everyday tasks like assisting with their grocery shopping, as well as planning holidays.
Similarly, Woolworths boss Amanda Bardwell said AI was shaping the way customers shop, pointing to data which shows more than 60 per cent of Australians say they have used AI assistance to shop.
Consumer expert Trent Rigby said the online channel was no longer where Coles and Woolworths lost money.
“For years, online was a land grab you had to fund but this is the first result where both of them have shown in it can pay,” he said.
Woolworths’ app now features a so-called Smart Basket, available for beta testing, that builds a basket based on previous purchases.
It builds on Woolworths’ conversational AI platform and chatbot Olive, which plans meals for customers and automatically adds items to online shopping baskets.
Coles has also identified conversational shopping and agentic commerce among its expansion opportunities.
The supermarket chain is now looking to use AI to enhance personalisation and product discovery.
But Mr Rigby cautioned the use of AI, pointing to when Woolworths was forced to tweak Olive after it went rogue earlier this year.
One Reddit user claimed Olive asked for its date of birth before “it started rambling about how its mother was born in the same year”.
“The challenge is a lot of this customer-facing AI is expensive to rollout, has little proven return on investment and can significantly erode customer trust when it goes wrong,” Mr Rigby said.
“Woolworths said it had fixed the problem but once that (customer) trust goes, it’s hard to win back.”
In a social media post this week, retail expert Bec Penn said she asked Olive to build her a cheese and antipasto platter for under $150. It came back with only a handful of products and the options were always home brands.
As the major supermarkets report the increasing number of home brand products on their shelves, Ms Penn said it was likely suppliers would also have to pay more to get prioritised by AI in online transactions.
Mr Rigby said while growth opportunities could be found in the online channel, Coles and Woolworths must not lose focus on the fact the dollar is mostly made in-stores.
He said across the sector, the in-store share was higher.
Mr Rigby noted German discount chain Aldi only launched online delivery through a partnership with DoorDash last year, while independents were further behind.
Despite this, Aldi was this week named Australia’s top supermarket for the ninth consecutive year by comparison site Canstar, which said deals and specials were the biggest driver in customer satisfaction.
It comes amid reports Aldi is slashing the number of products it offers and slimming down its well-known “middle aisle”, which features a curated, rotating selection of bargain items like electronics, clothing, tools and homewares.
Canstar consumer expert Eden Radford said if Aldi reduced its special buys, it could affect customer satisfaction ratings.
“However, that’s only if deals and specials continue to be the strongest driver of customer satisfaction,” she said, adding the supermarket landscape was evolving and what mattered most to customers could change over the next 12 months.
“Consumers are becoming far more savvy. They’re shopping around to maximise savings, checking unit prices more, and buying at different times to stretch their dollar.
“This is happening as major supermarkets roll out AI shopping tools and enhanced online capabilities to reach their customers in new ways.”
Mr Rigby said Aldi’s move was long overdue.
“Aldi has been squeezed. They sit at about 9 per cent of supermarket grocery sales. Twenty-five years in Australia and they still haven’t got anywhere near the majors,” he said.
“The Aldi middle aisle was a genuine drawcard with shoppers when it launched. It just isn’t a moat anymore. If I’m Aldi, the question I’d have is whether that floor space still earns its rent, especially when a lot of that stock is bulky and slow-moving.”
An Aldi spokesman said it continually reviewed its range to ensure it reflected what customers valued most.
“This streamlined approach allows our business to operate more efficiently and invest those savings directly back to customers through lower prices,” he said.
Other low-tech competitors for Coles and Woolworths also include US-based Costco, worth $US414.5 billion ($575.8b), known for its membership-only model and bulk buys.
Ms Weckert this week noted about 20 per cent of its customers were buying more in bulk in the face of higher interest rates and higher petrol prices.
Aldi and Costco do not provide the same level of sales transparency as Coles and Woolworths, but both Ms Weckert and Ms Bardwell claimed they were winning market share from other players.
Coles and Woolworths are also working to rebuild customer trust following an extended period of increased regulatory scrutiny and multiple government inquiries into claims of profiteering.
In September 2024, the Australian Competition and Consumer Commission launched separate, but similar, proceedings against Coles and Woolworths claiming both supermarkets jacked up prices on everyday items before offering discounts at prices higher or equal to the original shelf life.
The court founded Coles misled consumers with sham discounts, while Woolworths’ hearing concluded at the end of April, with judgment reserved.
Coles and Woolworths are also in the firing line of new anti-price gouging laws the consumer watchdog says will be another tool it will deploy to keep supermarkets in check.
