launches new front in U.S. price war, targets Aldi in
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[February 27, 2017]
By Nandita Bose
Stores Inc is running a new price-comparison test in at least 1,200 U.S.
stores and squeezing packaged goods suppliers in a bid to close a
pricing gap with German-based discount grocery chain Aldi and other U.S.
rivals like Kroger Co, according to four sources familiar with the
Wal-Mart launched the price test across 11 Midwest and Southeastern
states such as Iowa, Illinois and Florida, focusing on price competition
in the grocery business that accounts for 56 percent of the company's
revenue, said vendor sources with direct knowledge of the matter who did
not wish to be identified for fear of disrupting business relations with
Wal-Mart's tests are aimed at finding the right price point across a
range of products that will attract more shoppers, and then adjusting
prices as needed.
Spot checks by Reuters on a basket of grocery items sold by competing
Aldi and Wal-Mart stores in five Iowa and Illinois cities showed
Wal-Mart's bid to lower prices is already taking hold. Wal-Mart
consistently offered lower prices versus Aldi, an improvement over
recent analyst estimates that Wal-Mart's prices have been as much as 20
percent higher than Aldi on many grocery staples.
The competition at these stores is intense, with both competitors
selling a dozen large eggs for less than a dollar. A gallon of milk at
some stores was priced at around $1. For a graphic, click: http://tmsnrt.rs/2le6v0Y
The big box retailer also held meetings last week in Bentonville,
Arkansas with food and consumer products vendors, including Procter &
Gamble <PG.N>, Unilever PLC <ULVR.L>, Conagra Brands Inc <CAG.N>, and
demanded they reduce the cost they charge the retailer by 15 percent,
Wal-Mart also said it expects suppliers to help the company beat rivals
on head-to-head pricing 80 percent of the time, these vendor sources
said. The wide-ranging meeting with suppliers - where Wal-Mart discussed
other topics - was also attended by Johnson & Johnson <JNJ.N> and Kraft
Heinz Co <KHC.O>, among others, sources told Reuters. The consumer goods
companies did not respond to Reuters requests seeking comment.
These Wal-Mart moves signal a new front in the price war for U.S.
shoppers, as the pioneer of everyday low pricing seeks to regain its
competitive pricing advantage in traditional retailing.
For more than a year, Wal-Mart said it is investing in price while not
sharing specifics. When asked by Reuters about the test and demands on
grocery suppliers, Wal-Mart spokesman Lorenzo Lopez said the company is
"not in a position to share our strategy for competitive reasons."
Germany-based discount grocer Aldi is one of the relatively new rivals
quickly gaining market share in the hotly competitive grocery sector,
which already boasts Kroger, Albertsons Cos Inc and Publix Super Markets
as stiff competitors on price. A second Germany-based discount grocer,
Lidl, is planning to enter the U.S. market this year, and together the
German discounters pose a serious threat to Wal-Mart's U.S. grocery
The stakes are high for Wal-Mart. According to Scott Mushkin, managing
director of Wolfe Research and a leading pricing analyst, the retailer
would need to spend about $6 billion to regain market share from all of
its grocery rivals.
Wal-Mart also needs to find ways to cut prices without further damaging
its bottom line. In its latest quarter, gross margins slipped 8 basis
points, while net income dropped 18 percent compared to the year-ago
quarter. The company attributed the decline to factors such as price
investments, which is essentially the cost of cutting prices.Vendors
said Wal-Mart has told them it intends to maintain margins on average
and lose money on some goods as part of its pricing plan. Wal-Mart told
vendors it will absorb some of the losses so suppliers can adjust to the
new pricing demand.
A supplier of consumer goods said Wal-Mart cut prices on some of his
company's products by as much as 30 percent in some stores over the past
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Shopping carts are seen outside a new Wal-Mart Express store in
Chicago July 26, 2011. REUTERS/John Gress/File Photo
helped them figure out the sweet spot that drives traffic," the person said.
Wal-Mart also said it wants vendors to make logistics improvements that would
help vendors get $1 billion more in sales, though it did not specify the time
period. The retailer asked vendors to work harder on shipping orders in full and
on-time, which would trim delivery costs, reduce re-orders, and reduce
out-of-stock problems that have vexed the retailer and hurt sales in recent
years, vendor sources who attended the meeting told Reuters.
"Wal-Mart is trying to go back to where they were 10 years ago when they were
absolutely the low price leader," a large packaged food supplier told Reuters on
condition of anonymity. "We understand they are willing to give up profits to a
large extent in some cases, so they can invest in their own brand."
Aldi and Kroger declined to comment on the story. Lidl and Publix did not
respond to Reuters' requests seeking comment. Albertsons said running its stores
means delivering price competitiveness every day, but did not comment
specifically on the tests.
Wal-Mart is eyeing both German chains based on its recent experience in the
United Kingdom. Aldi and Lidl, with their no-frills stores, limited product
assortment and low-cost model, have successfully upended the grocery market
there, cutting into the sales of larger players like Tesco Plcand Asda,
Wal-Mart's UK arm.
A Reuters spot check of markets where Wal-Mart is running its new U.S. pricing
program indicates the retailer has already taken the price battle to Aldi. The
Reuters check of Wal-Mart and Aldi stores in five Midwestern cities where
Wal-Mart is running its test found Wal-Mart's prices for a basket of 15 staples
averaged 8 percent less than Aldi's products.
Reuters conducted the price comparisons in Dubuque and Davenport, Iowa, and
Moline, Dixon and Galesburg, Illinois. At each, Reuters collected prices for a
basket of 15 similar-sized products including private-label packages of butter
and milk, along with branded items like Crest toothpaste and 2 liter-bottle of
In some cases, Wal-Mart's prices were as much as 10 percent cheaper than at Aldi.
Reuters found Wal-Mart's prices were lower on at least eight and as many as 12
items in each of the five locations.
Wal-Mart is also conducting the price comparisons in Georgia, Indiana, Kansas,
Kentucky, Michigan, North Carolina, South Carolina and Virginia, according to
In the United States, Aldi is starting from a small base and Lidl has not yet
opened its first store. Aldi, with roughly 1,600 U.S. stores, accounts for only
about 1.5 percent of the U.S. grocery market - but it is growing at 15 percent a
year. Mushkin of Wolfe Research estimated Aldi and Lidl together could grab as
much as seven percent of the U.S. market over five years.
Wal-Mart currently controls about 22 percent of the U.S. grocery market, and its
U.S. sales are estimated to grow about 2 percent this year, according to
Over the past few years, Aldi's prices have been about 20 percent lower than
Wal-Mart's, said Mushkin of Wolfe Research. When Mushkin in December compared
Wal-Mart and Aldi prices in Connecticut for private label goods - the retailers'
own brands, typically the lowest-priced goods in each category - he found the
German chain's prices were 24 percent lower.
(Editing by David Greising and Edward Tobin)
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