How will Walmart’s price cutting affect Kroger and other rivals?
Walmart may be the largest seller of groceries in the U.S., but that doesn’t mean it doesn’t want even more of the business. The retailer, in its predictably Walmart way, has turned to cutting its prices even further. The result, according to a Wall Street Journal article, is that rivals such as Kroger are taking a hit.
Kroger, which had previously discussed the impact that food deflation was having on its numbers, reported a same-store sales decrease in the last quarter of 2016, the first such decline in 13 years. On the chain’s most recent earnings call, executives acknowledged that competitors were investing in price to gain share.
CEO Rodney McMullen said, “We’re really doubling down on the customer experience. We’re getting even more aggressive on process change and taking costs outward. It makes sense to take costs out and [improve] the competitiveness of our model.”
Mike Schlotman, Kroger CFO, said the company is relying on its 8451 data analytics unit to help craft meaningful offers for the chain’s customers.
“If you go into the store, from checking the retail price you wouldn’t see it because of offers that are made directly to customers, some via coupons. It’s all the above because different customers react different ways to different promotions, so it’s becoming increasingly personalized offers based on what that particular customer wants and desires are.”
The Journal reported on a Wolfe Research market basket study, which found prices at Walmart stores had dropped in markets across the U.S. Prices in Atlanta were down 4.9 percent while those in Philadelphia (5.8 percent) and Southern California (2.7 percent) had also dropped.
Reuters recently reported on a Walmart price test covering 1,200 stores in the Midwest and Southeast. The news service conducted its own checks and found Walmart had “consistently” lower prices than Aldi.
News of Walmart’s price cutting also comes on the heels of meetings with the company’s consumer packaged goods suppliers in which the retailer demanded price concessions. Vendors, who were not identified, told Reuters that Walmart expects them to help the chain achieve lower prices than its competitors “80 percent of the time.”
- Wal-Mart Brings Price War to Groceries, Boosting Pressure on Big Food Retailers – The Wall Street Journal
- Kroger’s CEO Rodney McMullen on Q4 2016 Results (Earnings Transcript) – Seeking Alpha
- Wal-Mart launches new front in U.S. price war, targets Aldi in grocery aisle – Reuters
- Will Walmart’s price push pull customers away from Aldi? – RetailWire
DISCUSSION QUESTIONS: Do you see a prolonged price battle affecting the grocery market in the U.S.? What will be the impact of Walmart’s price cutting have on grocery rivals large and small?