The nation's biggest supermarket chain says consumer sentiment has plummeted following the outbreak of war in the Middle East, which has sent fuel prices skyrocketing.
"It's not a minor shift, it's a major shift, really driven by the uncertainty," Woolworths chief executive Amanda Bardwell told a briefing on Thursday.
Woolworths' tracking indicates 44 per cent of customers are experiencing real budget pressures and are struggling to make ends meet.
"Many customers are calling out a search for more value overall," Ms Bardwell said.
"Many are also indicating they're going to do things like cook more at home, for example, to save on eating out.
"Every way in which we track where consumer sentiment is up to and their potential shift in behaviour says that value is going to become even more important."
Ms Bardwell said Woolworths, which has more than 1000 stores, understood it was slower than it should have been to hold down prices in the last inflationary cycle.
So the supermarket giant announced Thursday it would freeze shelf prices on 300 household staples for three months, absorbing any increases from suppliers.
"This is our opportunity, we believe, to build long-term trust and ultimately improve the outlook for the business over the midterm," she said.
Woolworths isn't saying how much the price freeze might cost it, but says higher fuel prices cost it between $15 million and $25 million in the third quarter.
The group is being pursued in the Federal Court by the consumer watchdog, which has accused it and Coles of duping customers with misleading discount pricing claims on hundreds of products.
Woolworths on Thursday reported $18.1 billion in total sales for the 13 weeks to April 5, up 4.5 per cent from a similar period a year ago.
Most of that was driven by food sales, which rose almost six per cent to $13.8 billion.
The sales lift showed grocery demand was still resilient even as households come under inflationary pressure, said Kylie Purcell, senior markets analyst at trading platform Stake.
"We're seeing shoppers become more deliberate rather than simply spending less," Ms Purcell said.
"They're buying more items per basket, engaging with more promotions and leaning heavily into loyalty programs."
The question for investors was whether Woolworths could continue to grow sales without damaging consumer trust, Ms Purcell said, adding the price freeze on consumer staples was unlikely to completely ease public annoyance.
RBC Capital Markets analyst Michael Toner called the update a negative, with the supermarket downgrading its Australian supermarket sales guidance.
Sales at Woolworths' Big W business grew 3.9 per cent, or 1.1 per cent when adjusting from the impact of Easter.
Woolworth described Big W's sales growth as modest, but said the quality of sales was strong and the division was on track to deliver positive earnings and cash flow for 2025/26 in line with previous expectations.
Woolworths said its supermarket ecommerce sales rose 23.1 per cent to $1.3 billion during the quarter for grocery deliveries, and 24.6 per cent to $919 million for pick-up orders.
Ecommerce sales grew to 16.6 per cent of all supermarket sales, up from 14.2 per cent a year ago.
Woolworths shares were down almost seven per cent to $34.71 in afternoon trading.
Coles will release its latest sales figures on Friday.
