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Jeffrey Hutton is a Morningstar contributor.

The war of the grocery chains is heating up, with Wesfarmers (WES) releasing sales results on Thursday that indicate it's stealing the march on its bigger rival Woolworths (WOW).

Discounting of food, such as vegetables and milk, as well as new stores helped Wesfarmers' Coles woo new customers away from Woolworths, clocking up a 3.7 per cent increase in food and liquor sales at stores open at least a year during the second quarter ended 31 December.

By comparison, Woolworths earlier this week announced a 1.1 per cent increase. Discounting by Coles meant the rate of price decreases accelerated to 2.4 per cent for the grocer during the period compared with 1.8 per cent in the first quarter.

But for many, the sales results were disappointing. Analysts were expecting increases of more than 5 per cent. Shares fell 2 per cent after the company released the sales results.

At the December quarter a year ago, sales jumped 6.6 per cent. In the three months ended in September, it rung up 5.2 per cent more sales.

The full cost of the promotional drive won't be known until the company reveals first-half earnings later in the month.

"Coles continues to drive volumes and customers away from Woolworths. Coles' food and liquor comparable sales growth is more than three times that of its main rival in the second quarter," says Peter Esho, chief market analyst at City Index.

"These are sales figures and the true impact of this supermarket war will be revealed in earnings numbers as they become apparent later this month."

Revenue at Coles rose to $9.4 billion during the three months ended 31 December. Sales rose 4.8 per cent at its home improvement and office supplies unit, which includes the Bunnings chain, to $2.4 billion during the period.

Sales at Coles rose for a fourteenth consecutive quarter, after the grocer recorded its biggest-ever Christmas week, Wesfarmers said.

Coles said it refurbished 30 supermarkets, opened six new ones and closed four during the quarter and is halfway through its store renewal program.

Even so, sales at the company's Target and Kmart chains struggled. Revenue at Target fell 2.5 per to $2.9 billion, while at Kmart sales fell 1.3 per cent to $2.3 billion.

Target sales were hurt by falling consumer electronics prices and the decision last year to withdraw from some products such as nappies. Comparable sales at Target fell 3.1 per cent. Wesfarmers revamped 13 Target stores during the quarter.

City Index's Esho says comparable sales and margins at Target will be under pressure in the second half.

"The key problem area for Wesfamers has been Target, and unfortunately things are still looking bleak," Esho says.

"This and Kmart's sales decline will be watched closely when profits are disclosed."