Woolworths Limited (ASX: WOW) and Wesfarmers Ltd (ASX: WES) – owner of Coles – might be cheering about some recent news.

According to data obtained by the Daily Telegraph, budget supermarket retailer Aldi is struggling to maintain its growth in Australia’s Eastern states and is losing market share.

The newspaper reports that Aldi’s market share has slipped to 11.7% in June 2016, down from 12% in June 2015 – despite opening a number of stores across Queensland, NSW and Victoria. It’s the first time Aldi’s sales have gone backwards since it launched its first store in Bankstown, NSW 15 years ago.

Aldi’s sales on the Eastern seaboard grew by just 0.4% during June 2016 compared to the previous year – while the market experienced growth of 3% over the same period.

That’s probably more a reflection that Woolies and Coles – along with Metcash Limited (ASX: MTS) – the supplier to independent IGA stores have finally acknowledged Aldi as a serious threat, and are now actively pushing back against the upstart retailer.

It’s no secret that Woolworths’ profit margins of around 8% were among the highest in the world for major supermarkets, and Coles’ margins were steadily growing too. That provided an opportunity for the low-cost operator Aldi to steal market share and take budget-conscious shoppers away from the two incumbent market leaders.

Woolworths’ EBIT margin has now dropped to 5%, while Coles’ margin was 4.7% (including Food, liquor and convenience stores) in the 2016 financial year- but you may see that grow very little in the next few years. The retailers have aggressively slashed prices and revamped their offerings, enticing customers back into their stores.

Woolworths vs Coles EBIT margins Sep 2016

Source: Company reports

This may be the first sign that Aldi may need to do more to keep or grow its market share. While the retailer will most definitely continue growing – it may be slower than in the past.

Foolish takeaway

The good news is that consumers now have a much more competitive supermarket sector, with more choice and more options. It was only a matter of time before Woolworths and Coles started taking Aldi seriously.

CLOSING TONIGHT AT MIDNIGHT! -- Here's what happened to The Motley Fool's massive $1 million ASX bet...

Less than three years ago, Motley Fool boss Bruce Jackson bet $1,000,000 of company money (plus $500,000 of his own family's cash) on one unique service known as Motley Fool Pro. Now Pro is up a staggering 89%, darn near DOUBLING members' money! Simply click the link below to get a sneak peek at Pro's 3 biggest winners... the "golden egg" stocks that have powered Pro to 89% returns! Fair warning: Your special time-limited invitation won't wait.

Discover the 3 "golden egg" stocks - and your invitation!

HOT OFF THE PRESSES: Motley Fool’s #1 Dividend Pick for 2017!

With its shares up 155% in just the last five years, this ‘under the radar’ consumer favourite is both a hot growth stock AND our expert’s #1 dividend pick for 2017. Now we’re pulling back the curtain for you... And all you have to do to discover the name, code and a full analysis is enter your email below!

Simply enter your email now to receive your copy of our brand-new FREE report, “The Motley Fool’s Top Dividend Stock for 2017.”

By clicking this button, you agree to our Terms of Service and Privacy Policy. We will use your email address only to keep you informed about updates to our website and about other products and services we think might interest you. You can unsubscribe from Take Stock at anytime. Please refer to our https://www.fool.com.au/financial-services-guide">Financial Services Guide (FSG) for more information.

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.