(UPDATED COVERAGE, Jan. 25) Bruce Peterson's comments have been added to this article.
Wal-Mart Stores Inc., said today it plans to reduce prices on fresh fruits and vegetables as part of a broader effort backed by first lady Michelle Obama to sell healthier foods.
The largest U.S. food retailer said lower prices to fresh produce suppliers aren’t part of the plan. Rather, Wal-Mart will offset reduced retail prices with higher sales volume and buying more products directly from growers, according to a statement from the company.
If the price-cutting effort is successful, Wal-Mart customers may save $1 billion a year on fresh fruits and vegetables, said Leslie Dach, Wal-Mart’s executive vice president of corporate affairs.
“Through a variety of sourcing, pricing and transportation and logistics initiatives we believe we can drive unnecessary costs out of the supply chain and result in even lower prices on fresh produce for our customers,” Dach said in a statement.
“For instance, we’re building more direct relationships with farmers, a move which we will generate more income for farmers and lower, more consistent prices for our customers,” Dach said.
Wal-Mart didn’t say how much fruit and vegetable prices will be lowered.
Any time a retailer makes broad price reductions, it draws attention to the affected categories, said Bruce Peterson, who is president of Fayetteville, Ark.-based Peterson Insights and former senior vice president and general merchandise manager of perishables at Wal-Mart. Many retailers are taking steps similar to Wal-Mart’s amid weaker sales, he said.
If Wal-Mart’s lower-price plan boosts fresh food sales,it's a “big win” for everyone, including produce suppliers and consumers, Peterson said.
“At least on the surface, it has the potential to be very, very positive,” Peterson said.
However, if Wal-Mart’s lower fresh produce prices fail to generate more sales, the retailer may have to push its suppliers for lower prices, he said.
When a retailer reduces prices, it’s crucial that increased sales follow to maintain the company’s profit margins, Peterson said.
“If you’re going to lower margins, you have to be able to drive sales,” he said. “If those sales don’t come, I assure you, they’re going to have to do something about that. Either raise prices or cover their margins from their suppliers, unless they increase margins somewhere else in the stores.”