UPDATE 12.25pm: Woolworths maintains it is winning the price war with Coles and says it is unfazed by its rival's revamped loyalty program.
The retail giant also said its price-slashing promotions were becoming more targeted and would continue to be an important driver of sales growth.
The comments came after Woolworths reported third quarter sales of $14.07 billion, up 3.8 per cent compared to the previous corresponding period.
Chief executive Grant O'Brien dismissed suggestions that Coles, owned by diversified conglomerate Wesfarmers, was taking the lead in the price war that began in January last year with its $1 per litre milk promotion.
Mr O'Brien said Woolworths was confident that it broadly had the best priced offerings for customers, but conceded Coles sometimes had the advantage.
"We believe our offer is the leading offer in the marketplace,” he told an analyst briefing.
"The gap (between Woolworths and Coles) jumps around a little bit but over a period of time, we're confident we have the right position."
He said the company was investing in promotions to attract customers in a more targeted way than previously.
"We know what promotions work, we know the effect that it has on customers is to a much greater extent than it did before so we're much more sensible in using our promotional dollars.
"Customers are getting better deals as a result."
Mr O'Brien said Woolworths was equally assured about the competitiveness of its Everyday Rewards program, which had been in place for three years and had attracted three million customers.
He said it was yet to be seen whether Coles' FlyBuys relaunch announced yesterday, which had not yet been launched, would prove successful.
"We're comfortable with the program that we have,” Mr O'Brien told analysts.
"It's part of the mix, part of the offer that ensures we're getting a million more customers in our stores on average every week."
Woolworths' loyalty program also provided valuable customer data that the supermarket used to gain a competitive advantage.
The company said its increase in third quarter sales across all divisions, including liquor and petrol, came despite a tight consumer market and substantial price deflation.
Average prices dropped 4.4 per cent compared to the previous corresponding period, partly due to the price war with Coles, Woolworths said.
Deflation for fresh produce was close to 20 per cent.
Mr O'Brien also said sales were affected by an unseasonably cold and wet summer period, which meant sales of big ticket items such as ice cream, insecticide and cordials were down.
The company opened six supermarkets, two Dan Murphy's liquor stores and three of its first 10 Masters hardware stores during the third quarter and plans an additional eight supermarkets and seven Dan Murphy's in the current quarter.
While the overall sales trend was pleasing, the company continued to remain cautious about the outlook for the fourth quarter, particularly given uncertainty about the impact of the carbon tax and interest rates, Mr O'Brien said.
Morningstar analyst Peter Warnes said the results did not prompt the investment research group to change its estimates, valuation and positive recommendation for Woolworths.
Woolworths shares were down two cents to $25.83 at 12.25pm.