On the supply side: Walmart says it won’t lose grocery market share to dollar stores in a recession
Discount retailers often gain and retain their share of recessions combined with rising prices. Walmart is America’s largest grocer and is known for its low prices regardless of economic conditions. Walmart had an 18% market share in groceries at the end of 2021, according to Numerator.
Dollar stores and deep discounters like Aldi and Lidl also work well when consumers are looking to spend less on consumables like groceries, paper products, and health and beauty products. The numerator found that Kroger held an 8.8% share of total US grocery spend, while Costco held a 6.4% market share. Sam’s Club held a 3.6% share, Aldi held 2.3%, Dollar General held 1.5%, and Amazon’s and Whole Foods’ shares were 1.3% and 1.1%, respectively.
Walmart U.S. CEO John Furner recently said Walmart is working with suppliers to maintain price separation from key competitors in every market it operates in. With inflationary pressures hitting most retail suppliers, Walmart said it plans to keep the line on prices low for as long as possible.
Economists say it won’t be easy, even for Walmart, as prices rose 8.6% this year through May with a 1% acceleration from May, more than the previous month. Most of this increase was for food and fuel, which impacts every US household. Hopes that inflation may have peaked were dashed with the latest CPI report on June 10. Consumers have to go back to the end of 1981 to find that prices are rising faster than they are now.
Walmart CEO Doug McMillon has expressed concern about inflationary pressures hitting American households. While Walmart serves all socioeconomic demographics, he said the impact on low-income households is of serious concern, as many are already turning to lower-priced foods and goods to push their discretionary spending forward.
McMillon recently told analysts that while general merchandise sales will likely decline given increased spending on food and fuel, the retailer is still making money in groceries.
“We make money in food, we make money in fresh food, and that mix of fresh and dry groceries is another dimension to watch. And I worry sometimes, when we talk about market share growth in groceries, that there’s kind of a shortcut that means there could be pressure on margins. We make money in fresh food and dry groceries, and we can handle inflation in those areas,” McMillon said.
Walmart executives agreed they had a lot to manage during times of inflation, ensuring opening prices were low enough to compete with even the deepest discounters. McMillon said Walmart US chief merchant Charles Redfield and his department are working on pricing to see how much it costs families to put groceries on the table. Staples like milk, tuna, mac and cheese, rice, beans, and pasta are all areas where consumers are turning to lower-cost private labels.
“We look at the number of units in the family basket and what inflation looks like for them,” McMillon said.
He said there are also opportunities to reach more value-conscious customers in categories like apparel and home who may not have shopped at Walmart before. But Walmart also reiterated that it will pass on price increases related to rising fuel or shipping costs enough to establish a fair price for items and also protect margins where appropriate to ensure customers get good value compared to the rest of the market.
McMillon said the strategy is long-term, so price gaps are where they need to grow profitable market share. He said that rather than increasing price differentials to improve short-term performance, the company chooses to try to grow Walmart+ memberships and find other areas to deliver value to customers who shop. online and in stores.
When specifically asked how Walmart expects not to lose share to dollar stores, McMillon said the company will continue to focus on good, better, and better selection of groceries and consumables. so consumers can choose where they want to save. He reiterated that opening prices will be competitive with dollar stores and deep discounters like Aldi, but Walmart will also carry national brands at a valued price point compared to full-service grocery options. He said that at a time when gas prices are at an all-time high, Walmart is also betting on consumers taking fewer trips and wanting to shop and shop in one stop when possible.
Rising prices are weighing on consumer confidence, which is also a concern for retailers. Josh Brown, CEO of Ritholtz Wealth Management, said June’s consumer sentiment reading of 50.2 is evidence that consumers feel they are in a recession.
“When prices and the cost of living increase concisely more than your income, consumers feel it, and they will change their behaviors. Of course, sales are going to increase because the price of everything has gone up, but consumers have to make choices about where and how they’re going to spend,” Brown said.
Persistent and widespread pricing pressure is certainly pinching consumers, further compressing sales of categories that are more discretionary as it takes more to fill the gas tank and put food on the table, Wells economists noted. Fargo. Pessimism was widespread in the June consumer confidence report as more than half of households’ views on their finances deteriorated. Savings rates have slowed and credit balances have also increased as more household funds are spent on food and fuel, according to Wells Fargo economists.
Editor’s note: The Supply side section of Talk Business & Politics focuses on the businesses, organizations, issues and individuals engaged in providing products and services to retailers. The Supply Side is managed by Talk Business & Politics and sponsored by Propak Logistics.