Will Wal-Mart Spark a Grocery Price War?
Gas prices have been coming down lately and American consumers
may be in the position to save even more bucks this summer as a wide variety
of retailers react to the latest round of Wal-Mart rollbacks on grocery items.
The
world’s largest retail chain recently announced it was discounting 22
key grocery items by an average of 30 percent off its previously low everyday
prices. The retailer is serious enough about reestablishing its pricing image
that it is digging into its own pockets — not just its suppliers’ — to pay
for savings it is passing along to consumers.
Bill Pecoriello, CEO of ConsumerEdge
Research, told The Associated Press
that  a market basket analysis of five food items found Wal-Mart’s price to be
24 percent lower than it was a year ago. The items were 14 percent lower than
Kroger’s price, while beating Safeway by 26 percent.
Executives at two grocery
chains, who spoke with requested anonymity, said they have noticed some changes
in foot traffic since the rollbacks were announced. They told RetailWire they
were reviewing pricing and would likely seek to minimize any damage by running
hotter deals on key items. Further, they may more aggressively promote
store brands in categories where they felt they couldn’t go head-to-head with
Wal-Mart.
Target, according to
the AP report, has moved to match Wal-Mart’s pricing
on discounted items.
"It is important to stay competitive, and to make sure
that our guests get the best prices we can offer," Vanessa Smith, a spokesperson
for Target, told WDAF. "So we are listening to our guests and making
sure we have those products available for them."
Discussion Questions: Will Wal-Mart’s latest rollbacks lead to a grocery industry
price war? What should grocers be doing when price is so front and center in
the news?
I don’t think there will be a price war but rather a press release war. We will see the sterile grocers offer double and triple coupons but have so many restrictions and fine print consumer will not see much savings. We will see how some grocers will be lowering 5,000 prices (by a penny and not mention that 35,000 will be raised).
The actual lowering of prices and trying to go toe to toe with Wal-Mart has only been accomplished by just a handful of grocery retailers. Those that can are already doing it. Those that can’t will be restricted to sending out empty press releases.
If Wal-Mart’s rollbacks lead to price wars, Wal-Mart wins. Let’s hope grocers have figured out that you don’t beat Wal-Mart on price, you beat them on selection and/or service.
It is already underway! Watch TV ads (Food Lion), go into retailers and see their price on the rollback items (many have matched). This is a tough spot for conventional grocers with little high margin general merchandise and a more expensive supply chain including labor.
Hearkening back 40 years to the last true nationwide supermarket price war started by Great A&P, I don’t think we live in the same environment to see Walmart start one nationally with that magnitude.
This time around, there is so much fragmentation in the industry, everyone except the local barbershop is selling food products. True, everyone is going to promote based on price, since, after all, in this type of economic climate, price matters most.
Private label which was a very important part of the A&P WEO price war, is back again. With private label stronger than it has been in quite a while, the majors will compete with each other, the dollar stores, the deep discounters, the drugstores and others, with temporary price reductions in all private label categories including milk and other dairy, frozen foods, detergents/household products, organics, center store and perimeter. This will force national brand manufacturers to continue giving better deals to the majors, because they fear the scenario that private label will further erode their market share.
When Walmart or any other major retail chain launches a price war, this also has implications for manufacturers that supply the mass merchants. What most consumers–and even some observers–do not understand is that price rollbacks and discounts are often paid for by suppliers that offer cost reductions and even margin protection to the retail chains. Often what this means too is that suppliers, in turn, need to offer the same cost concessions and discounts to all other retail chains, which result in paper thin margins and profits for the suppliers, which in turn has other results, not all so good.
I don’t think so. Where I live, Publix and Winn-Dixie are still touting service rather than low-low prices.
No one wins in a price war…not even Walmart.
The shopper should remain at the center of all of our merchandising decisions, with pricing being the most obvious. Shoppers have requirements and behaviors, it is our job as retailers to understand how these behaviors change as the environment changes–new products enter the market, manufacturers adjust their messages, the seasons change, and as competitor prices change.
Some of the changes will have a major influence on demand, others won’t. The trick is to understand these differences and to apply the right level of art and analytical science to our decisions on how to react.
Shopper behavior will drive some retailers to react aggressively to Walmart’s actions while other retailers should react differently based on their shoppers’ demand profiles. The important point is that we must understand our shoppers and their reactions to changes in the merchandising conditions they see in our own stores and the stores of our competitors.
I agree with Stephen. In a price war only Wal-Mart will win. Change the game, there are still many that will fight the exasperating traffic at Wal-Mart and lines. Wal-Mart has cut back in staffing and the lines are longer. Opportunity! Wal-Mart may have a better price on one staple but the other staples that go with it aren’t priced as well. Opportunity! Wal-mart may not be involved in the hometown mojo…opportunity! On and on….
There is nothing that a price war has ever achieved that could not be better achieved without one.
Most price wars are mostly propaganda affairs aimed at wooing customers with a different appeal. Most frequently rollbacks are actually subtle admissions that prices could have been lower in the past but weren’t.
Right now, responding to a parallel appeal now on TV, I am going out to buy 3 shirts and 3 ties at regular price and get an executive suit free. Humbug!
Walmart has bled some share to Target and Kroger recently, and Dollar General has taken a bite as well. That will not stand in Bentonville. And traditional grocery, which has also bled, will run red.
Carefully meet Walmart’s prices on certain frequently purchased items in each category. Be certain none of your prices are higher than most other competitors. Do a great job (which most retailers are not doing now) in providing Reasons to Buy and promoting the appetite appeal of what you are selling. Do more cross-selling so you sell solutions.
There are a number of great comments here (especially the first two from David Livingston and Stephen Needel) about the issues of perception-vs-reality in price positioning and the hopelessness of going head-to-head with Walmart on price, so I won’t belabor them.
I think the forgotten question here is: “which shoppers will pricing changes impact?”
If Walmart can steal a shopper from you by rolling back prices, it begs the question of whether or not that particular shopper was one you wanted in the first place. Often, the most price-sensitive shoppers (who will be most likely to react to Walmart’s moves) are the ones who cherry-pick deals, shop only the circular, and often end up losing money for a chain. On the other hand, the loyal, price-insensitive, convenience-minded shopper is not necessarily going to divert their business to Walmart because it’s even cheaper than it was before.
This is the moment when retailers should turn to data instead of turning to their guts. Look at your shopper data, and see who stops shopping (or, at least, reduces their shopping) in the weeks following Walmart’s announcement at stores near Walmarts. Then analyze those shoppers’ spending patterns. Are these core shoppers who sustain your business, or are they bottom-feeders who erode your margins? The true impact on your business may not be as bad as you think.
We have already seen the beginning of maybe not a price war, but a grocery skirmish. And what would be the problem with that from the consumer’s viewpoint? Not a thing. The consumer is the winner. It is about time we, the consumer, came out ahead on something.
I say let those “rollback” commercials continue. We shop at a large regional grocery chain known more for service than price. We can see the traffic has been affected by the “rollback” ads now and the price slashing before. Even this grocery chain has decided it is best to reduce prices than take the chance of losing the customer once they shop at Walmart and find how much they can really be saving. This is the real gamble in this “skirmish.” The grocers know there is a risk in losing customers long term. They can not afford that.
Dr. S. Needel is right on: Those who compete on price only are relegated to mere commodities. A couple years ago Safeway seemingly abandoned its excellent “lifestyle” positioning campaign and opted to slash prices. Now, they are a “me-too” chain, competing with all the others.
Reports are also out that consumers are rather fed up with all this frugality business. Many are returning to the value proposition that chains who focus on great assortment and service provide. That means local banners also. And, have you ever tried to return an item at Walmart?!
Walmart is fighting hard to win back shoppers who switched to Dollar and Aldi, after deciding these deep discounters gave better value for money in some categories. Announcing special savings for popular products will always grab attention, and Walmart will push their numbers up for awhile.
The supply chain will be pushed to new levels, and in higher margin categories, shoppers and Walmart will benefit. Other retailers will pick their battles (and categories) carefully to attract shoppers with lower pricing, but will also focus on their strengths and shopper loyalty programs to compete. A price war? Another round of belt tightening, but successful retailers know the focus has to stay on core shoppers who expect the best value for the money.
The challenge here is that if everyone is competing on price, the only way to maintain margins is through mix. Walmart has a much wider product mix with everything from furniture to auto parts and electronics with which to finance discounts on groceries. Of course the option is to accommodate smaller margins through lower operating costs, but both Walmart and supermarkets in general have pretty efficient supply chains.
Consumers are great at finding bargains and are just as quick to abandon retailers when they sense the discounts have been rescinded. I don’t think supermarkets should go crazy trying to match Walmart on price. Supermarkets should emphasize their category depth and their fresh products. If they want to match Walmart based on customer requests, it allows them to address the price sensitive customer without losing the overall margin.
Walmart will win to a certain extent, but people shop based on more than just price. Atmosphere and service matter. And don’t forget all those loyalty card holders who earn free gas, coupons, etc, with other retailers. Loyalty matters too.
This is a win for the consumer. Wal-Mart’s key price drops will force others to compete or change their model, which will introduce pricing efficiencies into their systems. It is adapt or perish when we start to examine model modification and the retail grocery industry. We will see some grocery retailers perish as long as this persists….
How to influence customer purchase decisions? Contrary to most of the opinions expressed here, push strategies masquerading as pull strategies (e.g., most optimization programs, wild pricing swings, etc.), don’t fill the bill. Instead, Marketing 101 sez gettin’ ’em into the store is Step One. Three on a mule, drop the baby and run. If they’re not in your store, you cannot influence their purchase decisions. Your newspaper ads will not influence their purchase decisions. Nor will your broadcast ads or coupon drops. Proximity is the ne plus ultra of foot traffic. After that, it’s a mixed bag of relatable pricing (focus on “relatable”), convenience, selection, service, and does-my-nephew-work-there.
Pricing may be “front and center in the news,” but we all sort newsy articles by how they relate to us. Thus, relatable pricing involves the shopper understanding what it means for them. Cherry-picking aside (and what grocer wants that?), the most profitable customers are those we speak to while they’re in our stores in a variety of ways to influence their purchase behavior. Sure, we’ve purchased some of their allegiance with responsible pricing, but they’re here because we’re near and they like us. They know where everything is (the #1 reason for not changing stores, by the way).
During the Civil War, citizens would carry picnic baskets to hills overlooking battles to view soldiers getting slaughtered. Same deal here. Consumers are on the hill with their discounted pic-a-nic baskets (thanks Yogi Bear) watching retailers slaughter each other. In the end, the previous status quo pretty much becomes the new status quo. No changes, except for retailers simultaneously deluding themselves and losing money. No net gains. What a view.
Walmart is only lowering some prices. It’s raising others and seems to be taking a new pricing tact in some departments. In the cereal isle, Walmart has increased the price dramatically on many of their Great Value PL items. For instance they increased GV bran flakes form $1.79 to $2.50 per box. The $2.50 price point seems to have become a base price for many of the Great Value cereal varieties. When Walmart increases the price of a PL item by 40%, the generated revenue can be used to reduce the price of higher visibility products. Let’s all remember that Walmart is a public company and stockholders have expectations. You can bet that if Walmart is lowering prices on some items, they have determined how they will offset this revenue loss. They will raise prices elsewhere, they will beat up their suppliers, or who knows what. Frankly, Walmart is somewhat new to this “loss leader” marketing. Many of the old line grocers have been pulling this crap for years. The troubling part is that Walmart built it’s business being straight with its customers, but this too, seems to be going down the tubes.
Let the bloodletting begin. When will independents realize that they should ignore the Walmart price schemes and concentrate on what independents do best, which is offer great perishables at prices Walmart will not match. We have real butchers, and real delis with the ability to make good profits and keep the customers coming back.
I have dropped over 2,000 SKUs in grocery and haven’t missed them at all. Don’t bring a slingshot to a tank battle, and try to win the grocery war–you can’t!
Give the customers custom- cut meats, and homemade prepared foods from the deli-bakery, plus build up the gluten-free, and diabetic friendly foods, and you’ll have customers coming into your stores every week. In 2011 it will be important to have profits to pay your increased taxes and health care premiums, so don’t give up your center-aisle profits. I’m just sayin’….
Wal-Mart will most likely not see much of an increase in foot traffic from this. Basically the extremely price-conscious shopper who does not care about service or variety already shops there. What is left are the people who shop the competition because they are closer, have better service and better variety.
I hate to shop at Wal-Mart because there is limited variety and customer service is non-existent. The only time I shop there is late at night when they are the closest thing open. Wal-Mart will not win many customers based upon price alone. They already have most of what is out there on that front. If they want more foot traffic they will need better service and better variety.