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Walmart Is Fighting Back Against Higher Prices Being Demanded By Its Major Product Suppliers

Walmart Is Fighting Back Against Higher Prices Being Demanded By Its Major Product Suppliers
A warning to major manufacturers of packaged goods has been issued by Walmart Inc. about the global retailer no longer willing to tolerate price increases, and is positioning its own private-label products as being alternatives that are less expensive compared to name-brand products from suppliers.
For the world's largest retailer, which is scheduled to report earnings on Feb. 21, any increase in prices for consumers —- even by a few cents —- can be detrimental, which could force a section of its consumers to seek out bargains at dollar stores or warehouse chains such as Costco.
Walmart, which boasts of its "Everyday Low Price" policy, had last year increased prices on milk, frozen meals, and Tide detergent, among other items, as its suppliers battled rising costs of everything from chemicals to wheat and fuel.
However, with the cost of cardboard cases falling by 40-50%, transportation costs falling by 25-30%, and raw material costs falling significantly, "retailers like Walmart will say 'hey, you already had three rounds of price hikes last year, why are you giving us another?'" said Burt Flickinger, managing director at retail consulting firm Strategic Resource Group.
Edgewell Personal Care Co CEO Rod Little told Reuters that it "will be very difficult" to pass on new price increases to retailers in the future. Edgewell's most important customer is Walmart.
"(Walmart) said to us, 'From here, our consumer is challenged, we're going to be looking out for consumers, so you're going to have to have really good reasons if you're going to price up from here," Little said in an interview.
"Because the consumer is now under more pressure, and Walmart is under pressure, that sets up a dynamic where there's probably not a lot of pricing going forward."
There were no comments available from Walmart.
Unilever, the maker of Dove soap, Knorr bullion cubes, and Hellmann's mayonnaise, said Thursday that it was "not yet past peak pricing," despite implementing a record 13.3% average price increase in the fourth quarter of 2022. Unilever estimated net material inflation in the first half of this year at $1.5 billion euros ($1.6 billion).
Procter & Gamble, the maker of Tide detergent and Pampers diapers, announced on January 19 that it would keep raising prices despite a drop in volume. It sells more than $10 billion in merchandise through Walmart.
Newell Brands, the maker of Rubbermaid containers, announced on Friday that it would raise some prices while expecting commodity and transportation costs to fall.
According to Newell's regulatory filings, Walmart accounts for 15% of its sales.
Walmart has the advantage. In the United States, its own store brands, Great Value and Equate, compete directly with Unilever and P&G's product lines. According to the research firm Numerator, which measured transactions for the fourth quarter of 2022, accounted for 43 percent of all online purchases of store brand packaged goods in the United States.
According to investors who follow the company, Walmart's clout over suppliers means that it will likely receive the smallest percentage of any price increases implemented by manufacturers.
"Walmart is just a conduit (for P&G and Unilever) that uses its enormous size to provide the best deals it can for customers," said David Klink, senior equity analyst at Huntington Private Bank.
"We would think Walmart might emerge with less of a consumer goodwill hit than these other companies in a rising-price environment," said Kilnk, whose firm holds more than $45 million in Walmart shares.
Walmart has previously stopped ordering products due to pricing disagreements.
In 2018, Walmart halted orders for Campbell Soup Co. products during the critical winter season due to a price dispute and shelf space promotion.
Across the pond, squabbles between Britain's largest supermarket chain Tesco and Kraft Heinz resulted in the removal of Heinz baked beans from shelves. Tesco called Heinz's price increases "unjustifiable" at the time.
Kimberly-Clark, the maker of Huggies diapers, announced additional pricing this year, while Colgate announced additional price increases in the first half of 2023.
"We're trying to figure out with our (dry grocery and consumables) suppliers, what could we do that's different that would help mitigate some of those costs?" Walmart CEO Doug McMillon said at an investor conference in December.
"Unfortunately, some of those suppliers are still pointing us towards more inflation next year on top of the mid-double digits this year. And we don't like that for any reason," he said.
Customers at Walmart and Kroger were waiting longer to buy new products such as bleach and kitty litter, and in some cases trading down to buy smaller sizes or larger wholesale quantities because they wanted more value per unit, according to Clorox's CFO Kevin Jacobsen on February 2.
Clorox has "no additional plans" to raise prices this year, he said, after raising them four times in 2022.

Christopher J. Mitchell

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