Woolworths Limited (ASX: WOW) may remain the dominant supermarket operator in Australia’s $90 billion market, but it is still losing market share to competitors, mainly Aldi.

According to new research by Roy Morgan, Woolworths’ market share has fallen to 37.3%, while Aldi’s has risen to $12.1%. In March 2015, Woolworths’ market share was 38.5%, while Aldi’s was 11.6%.

Rival Coles – owned by Wesfarmers Ltd (ASX: WES) also managed to slightly increase its market share from 31.8% to 32.5%. IGA retained its share at 9.7%.

Supermarket market share Mar 2016

Source: Roy Morgan Research

 

However, while Woolworths continues to see the lion’s share of revenues, the number of customers visiting Aldi has substantially increased. According to the research, while 10.5 million people shop at Woolworths in an average four-week period and 10 million at Coles, 5.3 million consumers shop at Aldi and growing rapidly.

Around 37% of shoppers visit at least one Coles, one Woolworths and one other supermarket over the same 4-week period. Only 20% of shoppers are loyal to one brand according to Roy Morgan Research CEO Michele Levine.

Woolworths has struggled to compete effectively against Coles and budget store Aldi after chasing its profit margins too high over a number of years. That has given the upstart and also the likes of Costco to take market share by offering cheaper products.

Private label issues

Coles and Woolies have also struggled with their private label strategies. While the two main supermarkets offer plain packaging to differentiate their home branded products, Aldi has branded most if its products similarly to leading brands. That has lead many consumers to equate Woolies and Coles lower priced home brand products as low quality and perceive Aldi’s similar products as higher quality.

That is something the supermarkets need to address unless they are happy to continue ceding ground to the discounter.

Foolish takeaway

It’s probably no surprise to many that Aldi continues to garner new customers and a growing market share at the expense of Woolworths. How they majors address those challenges will be interesting.

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Motley Fool writer/analyst Mike King owns shares in Woolworths and Wesfarmers. You can follow Mike on Twitter @TMFKinga

The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.