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NEW YORK -- Walmart Stores Inc. plans to lower its grocery prices by $1 billion this year in hopes that customers will be drawn in by the lower prices on food and also make purchases in other areas of the store, according to a Dow Jones Newswires report. The retail giant generated $145 billion in grocery sales last year.
The company referred to this new strategy as "investing in price," meaning it will reduce prices and not pass on inflation to customers, instead lowering its own profit margins. Walmart’s overall size allows it to make this short-term sacrifice to gain extra customer traffic and loyalty, where many retailers couldn't due to the thin margins on groceries, said Gilford Securities retail analyst Bernard Sosnick.
Kroger, Safeway and Supervalu have also invested in price while consumers remain cash-conscious, but Walmart has the advantage of being able to make up its losses in the food and consumables areas, the report noted. Walmart began seeing initial progress in 2011 and that momentum has continued into the new fiscal year, Walmart’s Chief Merchandising Officer Duncan Mac Naughton said at an industry conference.
"Some key momentum is building inside Wal-Mart U.S.," Mac Naughton stated.
In contrast, Safeway and Supervalu have struggled with increasing customer traffic and sales volume, while Kroger has performed better, according to the report. "Market share of traditional grocers, by whoever measures it, has been declining," Kroger CFO Michael Schlotman said this week. He added that Kroger is focused on growing its overall food consumption over traditional grocery sales.
Mac Naughton added that low prices will remain a cornerstone for Walmart as customers struggle with unemployment, high fuel prices and slow economic growth. The cost savings will be funded by productivity improvements and expense savings.
Walmart's annual report, filed on March 27, shows that groceries accounted for 55 percent of its U.S. sales last year, compared to 53 percent a year earlier. Its apparel sales, meanwhile, dropped a point to 7 percent of U.S. sales.