2017/02/28

Walmart Slashes Prices On Groceries

(AP Photo/Jae C. Hong, File)

Walmart is cutting prices in a handful of markets as the company readies for Aldi's expansion and the coming price war, according to a report.
Stores have lowered prices in key markets across 11 states, including the Midwest and Southeast. The markets account for roughly 56% of the company's revenue, said people familiar with the matter.

Shoppers in Kansas, Iowa, Illinois, Indiana, Michigan, Kentucky, Virginia, North Carolina, South Carolina, Georgia and Florida will benefit from the price cuts.
In late 2015, executives promised to focus on lowering prices and now it appears that one part of that plan is pressuring suppliers, according to Reuters

“We continuously look for ways to deliver savings to our customers – it’s part of our DNA," said Scott Malarky, a Walmart spokesman. As we've said previously, we're investing in price. But we're not in a position to share our strategy for competitive reasons."
Walmart has good reason to proactively lower prices as competition is heating up in the grocery aisles. European retailer Lidl will soon open its first stores here and Kroger has been taking marketshare at both the high- and low-end of the market.

Aldi has been remodeling stores for a sleeker more upscale look. Product assortment is being tweaked to match, with more organics and items that qualify as "free-from" additives under it's SimplyNature store brand.

All this as Aldi readies for its California debut this year.

With more than 1,600 stores, and 2,000 planned by the end of 2017, Walmart has reason to make serious strategic changes.

But it can't do this without vendor support and according to Reuters, the pressure is on for suppliers to cut prices by as much as 15%.

It's hardly new, this pressure on vendors to help a retailer cut costs. It's not even new for Walmart. But grocery margins are razor thin, sometimes as low as 1-2% for retailers.
The only real way to achieve this is to improve operational efficiency.

Reuters comparison shopped Walmart and Aldi in the markets where Walmart has reduced prices and found that Walmart was less expensive on like or similar items. Market baskets are notoriously difficult to conduct, especially at stores that primarily carry private label such as Aldi, but such a large effort can produce solid results.

The results have Walmart consistently less expensive than Aldi, as much as 10% less in some cases and 8 percent on average.

Being the low-price leader is how Walmart got its start and it's how Walmart plans to regain its dominance. Over the years there have been efforts to take stores (slightly) more upscale, to add technology or court city-dwellers or upper-income shoppers. None were very successful and current management's efforts to refocus on core competencies is already paying off.

Revenue and same store sales increased for the fourth quarter, as announced last week and online sales grew at a faster rate than Amazon.

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