RSS Twitter LinkedIn
The Global Resource for Loyalty Marketers

WSJ: Walmart tries to out-Walmart Walmart

While the general retail sector is shedding stores and jobs at a blistering pace, strange things are also afoot in the grocery retail sector, where price pressure driven by - three guesses, and the first two don't count! - Amazon and European deep discounters are squeezing the already-slim margins available to the grocery sector. Are grocers entering a death spiral of price-slashing? Will Walmart soon start paying customers to take groceries off their hands? Stay tuned.
 
By Rick Ferguson
 
The Wall Street Journal has the story which details the above-mentioned price pressure as the reason for Walmart's latest round of cost-cutting. Money quote:
 
"Prices for a basket of grocery items at Philadelphia area Walmart stores were 5.8% lower than a year ago, while those in the Atlanta and Southern California markets were 4.9% and 2.7% cheaper, respectively. The price war, coupled with Walmart's renewed focus on refurbishing stores, is hurting the nation's biggest grocers. Operating profits for U.S. supermarkets declined about 5% last year, Moody's Investors Service said."
Ouch. Even Kroger Co., arguably the gold standard for analytically-driven marketing designed to build repeat purchase and share of customer, has been battered; the company reported its first quarterly decrease in same-store sales after 13 years of growth, largely due to price cuts designed to match Walmart. The deflationary death-spiral has also impacted jobs, with Kroger reducing its workforce by 1,300 and reducing its planned capital investments. 
 
As for Walmart, the company's price-slashing has worked - but at what cost? Money quote #2:
 
"Walmart's price cuts are eating into its own profit, forcing it to cut costs and putting pressure on its vendors. But the company is stealing market share. While profit fell 18% in the most recent quarter, Walmart's sales in existing stores, a key metric of retailer health, have risen for 10 consecutive quarters."
The big question, of course, is how much longer grocers can continue to slash prices without imploding, sucked into a black hole of never-ending discounts. Unfortunately, there's simply no easy way to pull out of the spiral; consumers trained by decades of discounting can't be blamed for seeking out the lowest prices, especially when food costs represent the single largest household expense for most families, behind only mortgage and rent costs.
 
Advanced analytics driving customer segmentation and one-to-one offer personalization can certainly help stem the tide - that's what Kroger is doing, and it's one of the primary reasons for their 13-year run of growth. Their recent troubles reveal, however, that even the most sophisticated marketing approaches may not be enough to stave off systemic forces driving deflation. Right now, everyone is being forced to march to Walmart's beat. Like you, we'll be on the lookout for case studies of grocers successfully navigating this upstream journey.
 
Rick Ferguson is CEO and Editor in Chief of the Wise Marketer Group.