Walmart to Lower Grocery Prices
If your bill at the grocer store has been getting bigger, Walmart is about to offer some relief. With most households taking a hit in the pocketbook from the ongoing recession, lower food prices at the discount giant could lure even more customers away from the major grocery giants. Walmart is determined to regain its image as the low-price leader in the face of competition from dollar stores and discount grocery chains.
While Walmart has not released anything official about its new grocery pricing policy so far, there are reports that the huge chain is putting pressure on its food suppliers to keep their wholesale prices down. Walmart is in the perfect position to do this, since its sheer size makes it the 500-pound gorilla that can’t be pushed around.
The president of Customer Growth Partners Craig Johnson told DailyFinance: “Walmart is wise to leverage its cost advantage — just as consumers are being pinched on energy prices — and position itself as a problem solver for families. They’re sending the message, ‘We have little control over gas prices, but we can help you save on your grocery bills.’”
In a conference call last month, Walmart U.S. president and CEO William Simon stated that the rising cost of food “continued to be an issue for many of our customers,” adding “A challenging economy and rising gas prices will continue to drive customers to seek value. We’ll continue to help consumers adapt to such trends.”
So how does Walmart plan to accomplish this while maintaining its profit margin? Put the screws to suppliers, of course. Analyst Greg Mulholland of Sageworks told DailyFinance, “In order to protect their margins, stay competitive and keep costs low for the consumer, grocers like Walmart might be negotiating for wholesalers to absorb potential increased food prices.”
James Tenser of retail consultancy VSN Strategies agreed. “Walmart may see this circumstance as an opportunity to hammer harder on its rivals by reinforcing its every-day-low-price positioning. Suppliers can choose: Tighten their belts, or make a case [to Walmart] that some cost increases are unavoidable.”
So lower prices every day at your local Walmart would be very good news for cash-strapped shoppers, it’s not such a good thing for the suppliers that will have to cut their profit margins in order to keep the chain and its 3,868 stores as a customer. It’s also not so good for the other grocery stores located near a Walmart who are likely to be losing some regular shoppers to the megachain.