Wal-Mart 'lacing up gloves' in price battle with supermarkets

03/15/2010 04:08:42 PM
Bruce Blythe

Wal-Mart Stores Inc. will accelerate price cuts as it battles major grocery chains for food business, a skirmish that’s sure to reverberate with retailers’ fresh produce suppliers, analysts say.

There is a “renewed focus” on rollbacks, or permanent price reductions, at Wal-Mart, the company’s chief operating officer Bill Simon said in a March 10 investor conference sponsored by Bank of America Merrill Lynch.

“The higher the rollbacks go in our store, the better (comparison) sales are. So, we are pressing that forward,” Simon said. “We’re always about price. We have to deliver price, and we do.”

With Wal-Mart’s more aggressive rollback plans, the Bentonville, Ark.-based retailer is going after Kroger Co. and other big grocery chains that lured away consumers in recent years, Citigroup Inc. analyst Deborah Weinswig said.

Wal-Mart “is lacing up the gloves as it prepares to step back into the ring and win the modern day price war in food retail,” Weinswig said in a March 14 report.

For years, Wal-Mart, the world’s biggest retailer, used its size and scale to squeeze lower prices from suppliers and charge less than competitors for the products on its shelves. Wal-Mart’s food vendors probably should expect further pressure to reduce prices as the retailer tries to regain lost ground.

“If they’re going to deliver lower prices to consumers, they’re certainly going to look to suppliers to help them do that,” said Neil Stern, principal with McMillan Doolittle, a Chicago-based retail industry consultant.

“I suspect anyone who works with them will feel pressure to help them grow more,” Stern said of Wal-Mart. The retailer’s position essentially is “If we drive more volume, what can you do to help us reduce costs?” Stern said.

Simon, during the March 10 presentation, said rollbacks would be applied “all across the box,” with a focus on “known value items and food and consumables.”

He didn’t list any specific food categories. A Wal-Mart spokesman declined to comment.

Wal-Mart’s plans to step up rollbacks follow a 1.6% decline in U.S. same-store sales, including Sam’s Club, during the company’s most recent quarter.

Recent sales erosion was “a wake-up call” for Wal-Mart’s management, driving a renewed commitment to rollbacks, Weinswig, the Citigroup analyst, said in the March 14 report.

While Wal-Mart used price savings to win customers away from supermarkets during the recession, price gaps between Wal-Mart and traditional grocery stores have narrowed during the past two years, Weinswig said.


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