Woolworths has no plans to surrender in its price war with its rival Coles, but denies it will hurt suppliers in the process.
The supermarket's chief executive Grant O'Brien has denied that the margin increase came at the expense of its suppliers. However, he admitted he always had shoppers at the front of his mind when negotiating with suppliers.
"We're the agent between the customer and supplier and the customer is wanting to lower their cost of living so that they can balance their budget and the supplier wants a sustainable business," he said.
"We operate in between, and we wear the praise of the customers and the scorn of suppliers sometimes and on other occasions it's the other way around. It's a balance and we're happy to do that but the relationship we favour is in the customer's direction."
However, he said Woolworths could not operate if it cut suppliers' prices so low that they went out of business.
"We can't serve the customer if we don't have a supplier base," he said.
Woolworths and Coles have come under scrutiny by the competition watchdog amid concerns they may have engaged in improper practices by squeezing their suppliers.
Woolworths made a profit of $1.15 billion for the six months to December 31. Earnings from its supermarket and liquor business rose 6.1 per cent, with sales up 4.7 per cent. In food and liquor, the supermarket's prices fell 2.8 per cent but margins rose 7.73 per cent. Its market share, customers and basket size also increased.
The company expects net profit from continuing operations to rise by between four and six per cent for the full year.
While the price war continues with Coles, O'Brien is looking at ways to rein in costs to ensure profits continue to boom. Woolworths has been reducing the amount of fresh produce it throws out, expanding its exclusive brand ranges, using more effective promotions; and conducting more direct global sourcing.
"I don't see a mature business at all," O'Brien said.
Morningstar analyst Peter Warnes said while Woolworth's profit result was slightly above expectations, there was more scope to increase margins.
But he said those margin increases would come at the expense of suppliers.
"They're squeezing lemons," he said. "Suppliers are forced to give up some of their margins and the distribution centres are working over time."
However, Warnes said it would not make sense for the supermarket giants to destroy their own supply chains.
"Coles and Woolworths aren't there to destroy the picnic they're having," he said.
