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Jeffrey Hutton is a Morningstar contributor.

Woolworths (WOW) said it will sell its Dick Smith electronics stores as price deflation across its business threatens to erode profits.

The grocer, which announced a strategic review of its electronics retail business in November, said it would take a $300 million writedown as it closes 100 stores, and sheds staff and inventory.

The Dick Smith specialty business didn't fit well in the Woolworths group, which is increasingly resorting to higher sales volumes to keep pace with falling prices for some food items and electronics, in part brought on by competition from its rival Coles.

New data today showed sales slowed during the first half ended December. Increasingly budget-conscious consumers are seeking bargains. One example? Shoppers are limiting fill ups at the bowser to what they can afford, rather than a spending more to get a full tank.

"Dick Smith was taking a disproportionate amount of management time," chief executive officer Grant O'Brien told analysts during a briefing.

"Separating this specialty model from Woolworths is now the best option for the future for both businesses."

To make up for lower prices on electronics the retailer has had to resort to increased sales volumes, O'Brien told analysts.

Average audio visual prices in the first half fell by almost a third, while sales volume rose by more than 40 per cent.

Morningstar head of equities research Peter Warnes described the decision to sell Dick Smith as "commonsense".

"It's a positive conclusion despite the $300 million restructuring charge."

But total sales growth for Woolworths during the six months ended 31 December rose 3.7 per cent excluding the contribution from petrol. That result helped drive shares up 2 per cent at one point after the company's announcement on Tuesday morning.

Sales for Australian Food and Liquor, the company's biggest segment, climbed 4.1 per cent during the second quarter of the financial year.

Even so, same-store sales growth slowed to 1.1 per cent during the second quarter compared with 1.9 per cent in the first quarter. Prices shrunk 3.7 per cent at Australian Food and Liquor.

"We've seen a similar amount of deflation in January and that will continue for the balance of the quarter," O'Brien said.

Rival Coles this week announced intentions to lower prices on some products, including fruit and vegetables. O'Brien downplayed the move, saying the lower prices have more to do with seasonal variations in supply.