It’s two years to the day since Coles declared war on Woolworths, slashing its price of milk to just $1. With shares in both supermarket giants now at more than five-year highs, how do these archrivals maintain growth in a stagnant market?

One answer was provided recently when Coles extended its grocery price war to the corner store. Coles is now offering its home brand milk at $2 for two litres at 600 Coles Express outlets, and cut the price of its Coles branded bread.

Where to next? ... Coles and Woolies are looking for new sources of growth. Illustration: Simon Bosch

Woolworths matched the deal, ensuring Australia’s $4 billion a year convenience store market comes under even more pressure. These stores were already getting caught in the crossfire when Coles and Woolies introduced cheap milk and bread to their supermarkets two years ago.

A report by the Australian Association of Convenience Stores (AACS) for the 2011 calendar year gave some indication of the damage.