Kantar Retail: Price wars, supplier opportunities

Everyday low prices are the core of Wal-Mart’s business strategy, but the harder the retailer works for price separation the closer some of its competitors come to narrowing the gap, according to Kantar Retail.

This ongoing effort by Wal-Mart is not without its challenges for suppliers guarding margins, but analysts said there are some opportunities going forward.

Kantar Retail recently released it semi-annual price comparison between big box competitors Wal-Mart and Target who go head-to-head in large metro areas across the much of the U.S. and more recently Canada. While Wal-Mart still wins the blue ribbon for overall low price, Target is gaining ground with just 6 cents of separation in the edible grocery category, according the Kantar report.

The overall branded basket was 2.4% less expensive at Wal-Mart versus Target in the June study. The gaps narrowed from a 3.7% spread in January of this year, an indication that Target is willing to discount when and where necessary to be competitive.

Kantar found that Wal-Mart used just one price rollback in the six month period, while Target used 10 temporary price cuts in the period.

Target’s REDcard holders get a 5% reward on their purchases making their overall basket 2.7% less expensive than Wal-Mart’s. Savings like this foster loyalty and are key to the retailer delivering more value to its best customers, according to Kantar.

That is a departure from Wal-Mart’s “everyday low price” strategy. Leon Nicholas, senior analyst with Kantar, notes that both retailers’ stances are still evolving in very different directions.

Kantar reported that while REDcard Rewards and other promotions continue to reinforce value for Target’s most loyal guests and those able to afford stocking up, these potential savings are largely hidden from guests who have not already invested in these loyalty programs. The Kantar team of Leon Nicholas, Robin Sherk and Amy Koo, see this as an opportunity for suppliers going forward.

TARGET VISIBILITY
They indicate suppliers might approach Target about investing in everyday pricing for a few key products in lieu of the temporary price changes.

Nicholas said there is no way Target can match Wal-Mart’s scale item-for-item, but choosing a few iconic brands will likely narrow the price gap perception for infrequent guests.

He said REDcard shoppers are loyal and they don’t worry about shelf pricing because they know they it’s not what they pay. However, the analyst agree that suppliers have an opportunity to assist Target in reinforcing the REDcard savings proposition at the shelf by explicitly listing the REDcard price. This might help to drive more consumers toward the REDcard program.

Another tactic Kantar suggests is putting the potential savings from a REDcard at the bottom of the receipt, which could encourage shoppers to sign up after checkout.

WAL-MART EFFORT
Despite the constant effort of Wal-Mart to leverage its size and invest in price, the retailer has not been able to open up a definitive price leadership position against Target, who has shown an uncanny ability to match Wal-Mart pricing through temporary price cuts.

The message being loudly communicated from Wal-Mart is they will win on price day in and day out. They also offer Ad Match which let’s Wal-Mart shoppers mitigate the effects of Target’s temporary price cuts.

More widely disseminated is the “See For Yourself” receipt comparison. These ads have been launched in 75 markets and Wal-Mart reports customer traffic and sales have risen about 1% in those areas where the ads are shown. However, the campaign asserts Wal-Mart’s basket leadership over stores such as Walgreen’s, Publix and Giant Eagle, but Kantar said it has not found any comparisons versus Target thus far.

Wal-Mart’s low price campaign has largely been on branded product, but Kantar said the retailer is missing some opportunities in its well-known private label brands such Equate and Great Value. Those suppliers could have a case to plead with the retailer.

Kantar also expects Wal-Mart suppliers to feel heightened pricing pressure, particularly in traffic-driving edible grocery categories as the retailer is still trying to assert more basket separation on a local basis. They urge suppliers to continue monitoring price contenders, market-by-market, accounting for non-conventional competitors as well, such as Aldi, who just announced an 80-store expansion in the Midwest.

“Suppliers can anticipate increased emphasis of ‘save money appeals’, like with the promotion of lower opening price points and rollbacks to drive excitement and customer traffic,” Nicholas notes.

The analysts encourage suppliers to help advance distinct value assertions, such as aligning with Wal-Mart’ s complementary private labels or offering bonus packs to avoid direct price comparisons and add a sense of unique value.

Lastly, Kantar suggests that suppliers look for opportunities to aid digital promotions like mobile coupons geared to specific demographics as Wal-Mart continues to invest in its mobile technology platforms.

The survey assessed a basket of national brand items: 14 edible grocery, 13 non-edible grocery, and 16 health & beauty aids (HBA) items. Only identical SKUs from both retailers were assessed.