THE past fortnight has given us an update on the effects of competition on the two big supermarket retailers.

The half-yearly profit results of both Wesfarmers (owner of Coles) and Woolworths have shown a tightening in the grapple for the "swinging" shopper.

While the big two grew their total businesses at about the same rate - in terms of the expansion of sales - the numbers further inside the respective presentations to shareholders and analysts suggest there is still some considerable difference in performance.

Woolworths' Australian supermarket business - which includes food and liquor but excludes fuel sales - is now more than 50 per cent bigger than Coles'.

In the first half of 2009-10, Coles has regained some of the ground it lost under the direction of John Fletcher, when the group's management took its eye off the ball and gave up market share to its rival.

Coming off that lower base, it has recently had far better traction in keeping more of its customers' spending - and winning a few back - and grown its underlying sales at a faster rate than its rival.

Food suppliers to the major chains will know this pain.

This catch-up has been achieved through more aggressive price discounting and a shift to products in the retailers' own brands, where it has been able to limit price increases.

In its recent announcements, Woolworths reports that it had price inflation on products in its stores of 1.6 per cent, while Coles dug harder to win a higher rate of sales growth, with its prices falling an average 0.9 per cent.

In the commentary that came with Woolworths' results last week, chief executive officer Michael Luscombe suggests we are going to see this price competition remain a feature this year, and says he's got more to fight with in outlasting his rival.

Mr Luscombe has a little more margin to play with.

By my reckoning Woolworths is now further ahead in terms of profitability in the supermarket business than its rival.

The earnings margins made by his grocery division (as a percentage of the sales dollar) are now twice that of Coles, which Mr Luscombe says is due to superior work being done in supply chain improvements, work that started many years ago and which is now reaping benefits, making Woolworths one of the most profitable grocery retailers in the world.

Even better for his shareholders, the returns made by that division are a whopping 41 per cent of the capital invested in the retail business by its parent company.

Mr Luscombe's expectations for the use of price as a weapon - funded by its higher margins - promises to be one of the major settings for the grocery industry in 2010.

In the background, despite rosy stats being produced by the national statistics, tracking of food spending by Australian households suggests they are timidly plying more cash in the food market.

The major grocers - having won a higher share of total food spending as we went through a mild recession - want to hold as much of the shoppers' attention as possible as confidence gets better post-stimulus.