The Supply Side: Walmart price gaps widen against Target but not Amazon

Walmart says it is the trusted low-cost leader in grocery and consumables on a per-basket basis, but that’s not always true. There are several variables that can impact the total basket cost such as branded versus private label, as well as which competitors are shopped.

Raymond James & Associates reports Walmart’s investment in lower prices has paid off in its own brands such as Great Value, which is now an $8 billion private brand. Sam’s Choice and Equate products, also private labels at Walmart, were part of the basket.

Analysts compared a basket of 50 items of grocery and consumables over a two-year period that included anything from oatmeal and salt to dish detergent and lunch meat. They looked at national brands at Walmart and compared them against the retail giant’s private labels Great Value, Sam’s Choice and Equate.

Researchers said three items in the private brands basket — beer, waffles and ground beef — did not have a Great Value option, so the branded product was placed in each basket. Other items such as apples and meat were considered on a per-pound basis.

In January, the savings between the national brands and private label (Great Value, Equate, Sam’s Choice) basket decreased 0.6% from the previous month. The Great Value basket (excluding health and beauty aids) totaled $97.50, down from $97.75 the previous month and down from $107.89 a year ago. Over the past two years, Great Value basket prices have dropped from $111.92, down 12.8%.

The comparable branded basket price totaled $141.47 in January versus $142.02 the previous month and $141.90 a year ago. Prices have come down 3.4% over the past two years.

When comparing the Great Value basket against the national brands, the savings gap was 31.08% in January. Analysts said that was the third-highest savings gap in the past two years. The widest gap between Great Value and national brands was in May 2019 at 31.5%, signaling the retailer’s focus on accepting lower margins for lower prices.

When including health and beauty aids (HBA) in the basket, Walmart’s Great Value savings are wider. The basket total for the private brands totaled $118.42 in January, down from $118.67 the previous month and $128.48 a year ago. Since January 2018, the private brand basket price is down from $133.48, an 11.2% savings over the past 24 months.

The savings gap between the national brands with HBA and the comparable private label basket was 34.21% in January. The national brands basket cost $179.99. The savings gap has hovered around 34% since May of 2019, according to the report.

“We believe this portion of the survey is important, as more retailers invest further into private labels to compete against Amazon. In addition, for Walmart private labels [price and quality] will be increasingly more important as hard discounters like Aldi continue to expand their U.S. footprint,” said Bobby Griffin, a research analyst at Raymond James and author of the report.

He said private label adoption in the U.S. is still well below Europe’s penetration.

“Over the last two years, Walmart has continued to invest in the quality of its private-label offering as both Sam’s and Walmart management continues to call out the strength in private brand sales in both consumables and general merchandise items (increased penetration versus last year). In our view, Walmart’s private label offering is arguably the strongest it has ever been,” Griffin added.

Walmart is not the only retailer to invest in private brands. Target and Amazon have mounted similar campaigns to drive overall basket prices lower.

WALMART BEATS TARGET
Raymond James analysts also compared Walmart’s private brands against similar products at Target and also included promotional buys offered by Target. The basket comparison had 50 items that included grocery, consumable and HBA.

The low-cost basket at Walmart in January totaled $127.72, down 15 cents from the previous month. The Walmart low-cost basket price was $10 cheaper than the same month last year. The same basket at Target was $145.30, rising $5 from the previous month and roughly $2 higher than the year-ago period. When comparing the Walmart low-cost basket to Target, the savings gap in January widened to 12.1%, up from 9% in December.

The research indicates the savings gap between the low-cost basket at Walmart and Target has widened from 4.2% a year ago and 4.9% two years prior.

When comparing the branded basket of goods at Walmart and Target, the results were similar. Walmart’s national brands basket, which included HBA, totaled $179.39 in January, down about 50 cents from the prior month and about $1 cheaper than a year ago.

At Target the similar basket cost $188.36 in January, up nearly $5 from the previous month and $2.50 higher than a year ago. Walmart’s national brands basket savings totaled 4.8% in January, up from 2.3% the prior month and 3.3% reported a year ago.

The report found even with Target’s promotional buy-one-get-one offers, the savings at Walmart were still notable.

AMAZON CHALLENGES
Walmart’s online grocery and Amazon’s Prime Now basket had 37 like-for-like branded products. The January basket cost $137.28 at Walmart, a savings of $7.61 against Amazon’s $144.89 cost.

“Since we began this portion of our pricing study, the Walmart basket has been cheaper in 41 out of 44 months. In January, 36 items were also included on last month’s list. For those 36 items, Walmart’s advantage increased sequentially from 3.8% in December ($5.08 cheaper),” Griffin said. “Walmart’s prices were fairly similar sequentially, but Amazon’s prices increased across multiple items.”

He said January was still the second-lowest savings gap between Walmart and Amazon in the past two years.

For Walmart grocery delivery, the individual items are priced the same as online grocery pick up and in-store, while the customer pays $9.95 for a same-day delivery fee, or $7.95 during “less busy” times. Because the price gap is so narrow between Walmart and Amazon, when the grocery order is delivered and Walmart applies its delivery fee, the savings of $2.34 go to the Amazon shopper.

Griffin said this was the case in January and is the second time he has seen Walmart grocery delivery at a price disadvantage.

He said Walmart has begun offering unlimited grocery delivery in certain markets for $12.95 per month, or $98 annually. This compares with the $119 cost of a Prime membership that also includes online media streaming and unique content and two-day free shipping on Amazon.com.

Griffin said two months does not make a trend, but it appears Amazon is trying to be more cost competitive on grocery and that could require Walmart to exert pressure on suppliers for lower costs and keep pressure on lower prices that result in lower margins — a practice referred to as a price “investment.”

Editor’s note: The Supply Side section of Talk Business & Politics focuses on the companies, organizations, issues and individuals engaged in providing products and services to retailers. The Supply Side is managed by Talk Business & Politics and sponsored by Propak Logistics.