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Wal-Mart targets Aldi in Grocery Aisle; Launches New Front in U.S. Price War: Reuters

Wal-Mart targets Aldi in Grocery Aisle; Launches New Front in U.S. Price War: Reuters
In a bid to close a pricing gap with German-based discount grocery chain Aldi and other U.S. rivals like Kroger Co, Wal-Mart Stores Inc is squeezing packaged goods suppliers and running a new price-comparison test in at least 1,200 U.S. stores, according to the news agency Reuters.
Focusing on price competition in the grocery business that accounts for 56 percent of the company's revenue, Wal-Mart launched the price test across 11 Midwest and Southeastern states such as Iowa, Illinois and Florida, reported the Reuters quoting vendor sources with direct knowledge of the matter who did not wish to be identified for fear of disrupting business relations with Wal-Mart.
finding the right price point across a range of products that will attract more shoppers is the aim of the tests being conducted by Wal-Mart. The retailer would later on adjust the prices as needed.
Wal-Mart's bid to lower prices is already taking hold were showed by spot checks by Reuters on a basket of grocery items sold by competing Aldi and Wal-Mart stores in five Iowa and Illinois cities. In an improvement over recent analyst estimates that Wal-Mart's prices have been as much as 20 percent higher than Aldi on many grocery staples, Wal-Mart consistently offered lower prices versus Aldi.
With both competitors selling a dozen large eggs for less than a dollar, the competition at these stores is intense. And priced at around $1 was a gallon of milk at some stores.
Reuters reported that the big box retailer demanded suppliers reduce the cost they charge the retailer by 15 percent in meetings held last week in Bentonville, Arkansas with food and consumer products vendors, including Procter & Gamble, Unilever PLC, Conagra Brands Inc.
As the pioneer of everyday low pricing seeks to regain its competitive pricing advantage in traditional retailing, these Wal-Mart moves signal a new front in the price war for U.S. shoppers.
While not sharing specifics, Wal-Mart has been saying that it is investing in price for more than a year. Wal-Mart spokesman Lorenzo Lopez said the company is "not in a position to share our strategy for competitive reasons", when asked by Reuters about the test and demands on grocery suppliers.
The hotly competitive grocery sector, which already boasts Kroger, Albertsons Cos Inc and Publix Super Markets as stiff competitors on price, has seen the Germany-based discount grocer Aldi quickly gaining market share despite being one of the relatively new rivals in the market. The German discounters pose a serious threat to Wal-Mart's U.S. grocery business as a second Germany-based discount grocer, Lidl, is planning to enter the U.S. market this year.
The retailer would need to spend about $6 billion to regain market share from all of its grocery rivals as the stakes are high for Wal-Mart, says Scott Mushkin, managing director of Wolfe Research and a leading pricing analyst.
Without further damaging its bottom line, Wal-Mart also needs to find ways to cut prices. While net income dropped 18 percent compared to the year-ago quarter, gross margins slipped 8 basis points in its latest quarter. Factors such as price investments, which is essentially the cost of cutting prices were considered to be responsible for the decline by the company. As part of its pricing plan, Wal-Mart intends to maintain margins on average and lose money on some goods, vendors said Wal-Mart has told them. To allow suppliers to adjust to the new pricing demand, Wal-Mart told vendors it will absorb some of the losses.

Christopher J. Mitchell

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