Woolworths Limited and Wesfarmers Ltd shares could keep falling on Aldi’s rise

The latest retail turnover data from the Australian Bureau of Statistics (ABS) was released on Tuesday which showed a 0.2% seasonally adjusted rise in May. That’s certainly a lacklustre growth rate, however, some industries of course fared better than others.

For shareholders of both Woolworths Limited (ASX: WOW) and Wesfarmers Ltd (ASX: WES) the ABS data was better, with the food retailing industry putting in one of the strongest performances across the sector, recording a seasonally adjusted rise of 0.7%.

That news wasn’t good enough to excite investors however, with Woolworths and Wesfarmers sliding 1% and 1.3% respectively. This was broadly in line with the 1% drop in the S&P/ASX 200 (Index: ^AXJO) (ASX: XJO).

One explanation for the lacklustre response from investors towards these two supermarket giants is the likely assumption that competitor Aldi will have captured a significant share of food retailing growth.

It certainly wouldn’t be surprising if that was the case given the growing understanding amongst investors of the effect Aldi’s entry is having on the Australian supermarket industry. This means the world-leading margins of Woolworths might be a thing of the past.

It’s because of this competitive squeeze on Woolworths’ profits that the Woolworths share price may still not be cheap.

In contrast, Wesfarmers shares could arguably offer value today despite not having endured the share price falls experienced by its peer thanks to its conglomerate structure and the significant growth potential of its Bunnings business.

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Motley Fool contributor Tim McArthur has no position in any stocks mentioned. 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.

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