Wal-Mart’s low price fixation leads to new private label

Wal-Mart Stores, a self-proclaimed low cost retailer, is investing in a new private label brand aimed at wooing bottom-dollar customers from ALDI and Dollar General.

Price First is a new opening price point product line that the retail giant has tested in selected markets since the fall of 2013. Products include pasta, peanut butter, baking mixes, mustard and other condiments totaling about 50 items including paper and other consumables. Wal-Mart is nationally debuting the new private-label product line in more than 2,500 stores over the next few months, according to Danit Marquardt, Wal-Mart corporate spokeswoman.

A sample of Price First products include a 40-count package of foam dinner plates for 97 cents, or 150 dinner napkins for 97 cents and a four pack of toilet paper is priced at 68 cents – all of which beat opening price points of other competitors.

This effort by Wal-Mart comes as no surprise given the retailer’s focus on having the lowest prices, a core mission of new CEO Doug McMillon.

“In an environment where customers have so many choices about where to shop and how to buy, and many of them are feeling pressure on their budgets, we have to be at our best,” McMillon said in the recent quarterly earnings call. “That’s why it’s so important for us to deliver a compelling customer proposition of low prices and quality service for every transaction.”

“Our Walmart U.S. business added approximately $1.9 billion in net sales and delivered a flat comp. I’m encouraged that we’re gaining traction on our goal to have a positive comp by year end, but I’m not satisfied,” McMillon added.

Wal-Mart continues to note a negative impact from the reduced SNAP (food stamp) benefits – estimated 0.7% reduction to comparable store sales – which has also meant less money in the wallets of core customers struggling to make ends meet.

Retail expert Jason Long, CEO of Shift Marketing Group, said Wal-Mart’s new lower tier price point looks to be part of its plan to win customers on tight budgets.

“It will be interesting to see how Wal-Mart promotes this brand and if it puts further price pressures on suppliers of Great Value and branded products,” Long said.

Long said the private label line should resonate with consumers seeking rock-bottom prices for things they need. For instance when a shopper just has $25 to spend on food and consumables for the week, they need the lowest opening price point, not necessarily the best value. That is often a a smaller size name brand item sold at Dollar General or a trusted private label at ALDI. The new Price List brand at Wal-Mart now provides another option.

Kantar Retail reported that in late 2013 that Dollar General beat Wal-Mart in a head-to-head basket challenge on opening price points. Kantar’s report found among the seven retailers surveyed that Dollar General had the least expensive basket thanks to lower opening price points in its edible and non-edible baskets. 

At a total cost of $23.81 the basket savings were 18% more at Dollar General than their closest competitor, Wal-Mart, with a $28.12 basket total. Shortly after, Wal-Mart began testing its Price First private label items. In that study, Aldi’s basket was $34.70.
A separate study by Market Force recently recognized Aldi as the nation’s low-price grocery leader for the fourth consecutive year.

Wal-Mart’s new private label launch also comes on the heels of Savings Catcher, the new lowest price ad matching app, rolled out nationally, which compares branded products, produce and limited general merchandise against the prices competitors in the immediate area. The retailer said the Savings Catcher is being widely used by its shopper base, but industry experts warn that this all-out attempt to match sales prices could lead to margin erosion. 

Kantar Retail released last week its 12th iteration of a pricing study between Wal-Mart and Target. The study assessed a basket of national brand items: 15 edible grocery, 11 non-edible grocery, and 13 health & beauty aids (HBA) items. Kantar reported that Wal-Mart’s overall branded basket was 1.2% less expensive than Target’s. The price gap between the retailers narrowed from 4% in January.

Target’s edible basket was 10.5% more expensive than Wal-Mart’s when temporary price cuts and rollbacks were factored in. For the HBA sub-basket Target’s price was 4.7% less expensive than Wal-Mart’s, which was the only sub-category in Target’s favor. HBA is one area where Target discounts more than Wal-Mart. 

However, Target’s Redcard holders would have paid 3.9% less than Wal-Mart shoppers for the total basket as Target continues to reward it most loyal shoppers.

The Kantar study took place in June prior to the national rollout of Savings Catcher. 
The narrowing price gap between Wal-Mart and Target is the lowest recorded since June 2012. 

“This slightly lessened stronghold on price leadership shows the difficulty in creating basket separation based on price, emphasizing the need for alternative methods to drive impression and value perception by shoppers. The smaller difference would also seem to reflect Wal-Mart’s general shift toward a more nuanced and customized approach to Everyday Low Price,” Kantar noted in the study.

Long said Target is testing many things to recover sales and the shrinking price gap against Wal-Mart is perhaps evidence that some of them may be working.