The announcement of Mr Banducci's departure comes just days after he walked out of an interview ABC's Four Corners while being questioned about price gouging and a lack of competition in the industry.
It also comes at a time when both Woolworths and Coles have been under political pressure about pricing amid the cost of living crisis.
Amanda Bardwell, the managing director of the supermarket group's ecommerce arm, will become its 13th CEO when Mr Banducci retires on September 1.
Chairman Scott Perkins Mr Banducci had led a remarkable turnaround of the company and built a team of amazing calibre during his 13 years with the group, eight and a half as its CEO.
"The test of any CEO is to leave the business in much better shape than when they started," Mr Perkins said.
"On that simple metric, history will judge Brad to have been one of Woolworth Group's finest leaders."
Woolworths was also under fire about its decision to abandoned selling Australia Day items, with some calling for a boycott of the supermarket.
The supermarket chain also announced Wednesday that it suffered a $781 million first-half loss, including a $NZ1.6 billion ($A1.5 billion) writedown of goodwill from its New Zealand supermarkets and $209 change in accounting treatment of its holdings of Endeavour Group, the alcohol retailer it spun off in 2021.
Excluding those items, Woolworths posted a $929 billion net profit after tax for the six months to December 31, up 2.5 per cent from a year ago.
Sales were up 4.4 per cent to $34.6 billion.
Mr Banducci said called the first-half result mixed, with solid results from its flagship Australian supermarkets but a very challenging trading environment in New Zealand and for its Big W stores.
"Outside of solid trading in key events like Black Friday and Christmas, customers are increasingly cautious and trading down," Mr Banducci said of Big W.
Mr Perkins said that Ms Bardwell was chosen after an intensive international search process supported by external consultants.
Mr Perkins called her a proven leader, business builder and modern retailer who had taken WooliesX from infancy to a $7 billion market-leading business.
"Amanda is highly respected throughout the organisation and I know, like Brad, will live our purpose and work hard to achieve Woolworths Group's full potential."
Ms Perkins will be paid $2.15 million year in fixed compensation, and be eligible for up to $6.9 million a year in short- and long-term incentive payments.
