Woolworths was initially too relaxed about the threat of German discounter Aldi but that is no longer the case, the supermarket giant’s chairman Gordon Cairns says.

Mr Cairns says Woolies’ own-brand products now match Aldi’s prices, and it has regained its lead in fresh food after allowing quality and service to slip while arch-rival Coles stepped up its fresh produce.

“We were somewhat lackadaisical in responding to the threat from Aldi – that is no longer the case,” Mr Cairns said during the group’s annual general meeting on Thursday.

“We were the ‘Fresh Food People’ and then we lost that position – we lost that position because we allowed the quality of our fresh food and execution to deteriorate.”

Chief executive Brad Banducci echoed Mr Cairns’ view of the German challenger – which arrived in Australia 15 years ago – after shareholders expressed concern about Woolworths having not kept up with the competition.

“We didn’t treat Aldi with the respect they deserved as a very successful global retailer,” Mr Banducci said.

“We have done a lot of work on our own brands.”

He said the group initially matched its entry-level Home Brand product prices with Aldi’s prices but “it didn’t move the dial”.

This was why the group began phasing out Home Brand and redesigning and expanding its Essentials brand, and after 12 months, customers are responding to the changes, he added.

Mr Banducci also sought to reassure shareholders about the future of the group’s struggling discount department chain Big W, a week after its newly installed chief executive resigned.

Aldi has high ambitions in Australia. Photo: AAP

“You will know that in our first quarter results, we noted that Big W was at the start of a multi-year turnaround, and we will continue to refine and build on that transformation agenda,” he said.

Sally Macdonald, who is credited with turning around luxury handbag retailer Oroton, resigned last week as Big W’s chief executive after less than a year in the job.

Mr Banducci said Ms Macdonald’s resignation was unfortunate and praised the progress she had made during her short time with the company.

He said she had made material progress in restructuring the business, including direct sourcing of products, improving the fashion range, simplifying the business and cutting costs.

Woolworths chairman Gordon Cairns (right) speaks with a shareholder at the AGM. Photo: AAP

Mr Cairns said he was disappointed to see Ms Macdonald leave.

Woolworths’ home improvement business head David Walker will replace Ms Macdonald, who Woolworths said resigned because her expectation for how long it would take to turn Big W around was inconsistent with the group’s three to five years target.

Big W’s sales have been in decline, falling 5.5 per cent to $880 million during the first quarter of the 2017 financial year, compared to a year ago.

Woolworths booked about $460 million in asset writedowns related to Big W and Ezibuy, the group’s online retailer, when it reported a $1.235 billion annual loss in August.

Shares in Woolworths closed 10 cents higher at $23.50.

-AAP