The Supply Side: Walmart says it won’t lose grocery market share to dollar stores in recessionary period

by Kim Souza ([email protected]) 2,750 views 

Discount retailers often win and retain share in recessions combined with rising prices. Walmart is the largest U.S. grocer and is known for low prices no matter the economic conditions. Walmart held an 18% grocery market share at the end of 2021, according to Numerator.

Dollar stores and deep discounters like Aldi and Lidl also perform well when consumers seek to spend less on consumables like grocery, paper products and health and beauty aids. Numerator found Kroger to have an 8.8% share of total U.S. grocery spend, while Costco had a 6.4% market share. Sam’s Club had a 3.6% share, Aldi had 2.3%, Dollar General had 1.5%, and Amazon and Whole Foods’ shares were 1.3% and 1.1%, respectively.

Walmart U.S. CEO John Furner recently said Walmart is working with suppliers to keep price separation from its core competitors in each market where it operates. With inflationary pressures hitting most retail suppliers, Walmart said it plans to hold the line on low prices as long as possible.

Economists say that won’t be easy, even for Walmart, as prices are up 8.6% this year through May with an acceleration of 1% from May, which was more than in the previous month. The bulk of that increase was in food and fuel, which impacts every U.S. household. Hopes that inflation had peaked were dashed with the latest CPI report on June 10. Consumers have to go back to late 1981 to find prices rising faster than they are now.

Walmart CEO Doug McMillon said he is worried about the inflationary pressures that are hitting U.S. households. While Walmart serves all socioeconomic demographics, he said the impact on low income households is very concerning as many are already trading down to lower priced foods and goods to make their discretionary spending go further.

McMillon recently told analysts that even though general merchandise sales will likely subside given rising food and fuel expenditures, the retailer still makes money in grocery.

“We make money in food, we make money in fresh food, and that mix of fresh to dry grocery is another dimension to keep an eye on. And I do worry sometimes when we talk about market share growth in grocery that somehow there’s a shorthand that means there could be margin pressure. We make money in fresh food and in dry grocery, and we can manage inflation in those areas,” McMillon said.

Walmart executives agreed they have a lot to manage during inflationary periods, from ensuring opening price points are low enough to compete with even the deepest discounters. McMillon said Charles Redfield, chief merchant for Walmart U.S., and his department work on price points to see how much it costs families to put groceries on the table. Staples like milk, tuna, mac and cheese, rice, beans and pasta are all areas where consumers are trading down to lower cost private brands.

“We look at how many units are in the family basket and what inflation looks like for them,” McMillon said.

He said there are also opportunities to reach more value-conscious customers in categories like apparel and home that may not have shopped at Walmart before. But Walmart also reiterated it will pass through price increases related to higher fuel or shipping costs enough to fairly price items and also protect margins where appropriate to make sure customers get the right value versus the rest of the market.

McMillon said the strategy is long-term so price gaps are where they need to grow profitable market share. He said rather than increase price gaps for improved short-term performance the company opts to try and grow Walmart+ memberships and find other areas to provide value to customers who shop online and in stores.

When specifically asked how Walmart expects to keep from losing share to dollar stores, McMillon said the company will continue to focus on a good, better and best selection in grocery and consumables so consumers can pick and choose where they want to save. He reiterated the opening price points will be competitive with dollar stores and deep discounters like Aldi, but Walmart will also carry national brands at a valued price level relative to full-service grocery options. He said in a time when gas prices are at a record high, Walmart is also banking on consumers making fewer trips and wanting to get all their groceries and purchases with one stop when possible.

Rising prices are taking a toll on consumer sentiment which is also concerning for retailers. Josh Brown, CEO of Ritholtz Wealth Management, said the June consumer sentiment reading of 50.2 is proof consumers feel like they are in a recession.

“When prices and cost of living are rising concisely more than your income consumers feel it, and they will change behaviors. Of course, sales are going to rise because the price of everything has gone up, but consumers have to make choices about where and how they will spend,” Brown said.

Persistent and broad price pressure is certainly pinching consumers, further squeezing category sales that are more discretionary as it takes more to fill the gas tank and put food on the table, noted Wells Fargo economists. The pessimism was widespread in the June consumer confidence report as more than half of households’ opinions of their finances have worsened. Savings rates have slowed, and credit balances have also increased as more of the household funds are going toward food and fuel, according to Wells Fargo economists.

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.