Australia's food and grocery prices have to come down further because they are "crazy" compared to the rest of the world, Coles managing director John Durkan says.
"It's already an overpriced grocery market in my view and I've been saying that for nine years," Mr Durkan told analysts during Wesfarmers' strategy day meeting on Wednesday.
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"I still look at products here that are made overseas and they are crazy prices."
He said the cost of those products meant there was room for Coles' private labelled products to grow.
His comments come in the wake of consumer magazine CHOICE's latest supermarket price survey which found consumers can save nearly $80 a shop by switching from leading brands to a basket of Aldi budget products.
However, Wesfarmers shares have been a major drag on the ASX on Wednesday morning after outgoing chief executive Richard Goyder said the group's hardware business in the UK was likely to make a loss in the second half of 2017 and into the first half of 2018.
Wesfarmers' shares were down more than 2.9 per cent to $40.19 just after midday.
The company also warned its supermarket margins continue to be under pressure amid intense price competition.
![Coles was fined $2.5 million for selling bread branded as freshly baked when it was prepared and frozen in Europe.](http://web.archive.org./web/20170611061734im_/https://www.fairfaxstatic.com.au/content/dam/images/1/m/i/3/d/7/image.related.articleLeadwide.620x349.gwm2m2.png/1496837116794.jpg)
"The rate of investment in the second half is notably above that in the first half," Durkan said.
Coles invested about $65 million into reducing prices and improving service in the December-quarter and second-half investment was "triple that".
"It remains today as strong as it did in Q3 - it's a high level of investment but cost savings will come out over time," he said. "We believe our strategy will leave Coles well positioned for continued growth over the long term."
Mr Durkan also said he wants Coles to be famous for its fresh bread and plans were underway to convert an additional 180 stores to include in-house bakeries.
The ultimate plan is for every Coles' store to have freshly baked bread.
Coles and fresh bread have a spotty history - in 2014 the supermarket giant was hit with a $2.5m fine for selling bread branded as freshly baked when it was prepared and frozen in Europe.
Mr Durkan said Coles was focused on increasing its fresh produce and reducing the range of some products to make it simpler for the customer.
Sales in pasta sauce and garbage bags had risen after Coles recently shrank both of those products' range, he said.
"We have moved eight lines out of our garbage bag category, which was 20 per cent of the items in that category, and in response, sales have increased by five per cent," he said.
There was a similar lift in pasta sauce sales after Coles narrowed its range by about 17 per cent.
AAP