The Big (Grocery) Price War Is a Potential Game-Changer

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Although the rate of food inflation has retreated substantially during the last year, polls and surveys consistently report that consumers, most of whom are still struggling with the unaffordable cost of housing, believe it remains high. 

This economic mismatch between perception and reality—along with pressure from Washington about things like smaller product sizes (aka, shrink-flation)—has triggered an extraordinary grocery price war that goes beyond the usual seasonal promotions into the realm of industry game-changer.

You cannot discuss the grocery business without starting with Walmart—the company now owns nearly a quarter of the entire US annual grocery spend, according to data collected by consumer research firm Numerator. Grocery sales accounted for almost 60 percent of Walmart’s 2023 revenue of nearly $650 billion.

The company announced early this spring that it was “removing inflation” on popular Easter meal items and, more generally, on grocery essentials (meat, eggs, fruit). More recently, the company said it had rolled back prices on nearly 7,000 items. 

What is extraordinary about Walmart’s strategy is that it comes after a year in which the company’s annual revenue surged by 6 percent to nearly $650 million, and its margins have been widening. Even better, the company recently said higher income customers accounted for the bulk of a 22% rise in e-commerce sales.

Cutting prices is a time-honored competitive tactic, especially when the economy is running on empty and the other guys are trying to poach your customers. But that’s not the case with this economy or with Walmart.

It and Costco appear to be acquiring customers from all of their competitors. Like Walmart, Costco’s market share has increased in each of the last three years, to 9.2% in 2023.

This may be the profile of the new normal customer—practical and price-conscious at every income level.

The losers include Kroger, the nation’s second largest supermarket operator, which lost its share of the US dollar spend on groceries in every one of the last three years, down to 10.1% last year. Albertsons, which has been trying to convince the Federal Trade Commission to let it merge with Kroger, has also been losing share, down to 6.4%.

In grocery sales, Target would hardly be worth mentioning as ranked by grocery revenue ($23.9 billion in 2023) or by market share (2.7% last year, down slightly from 2022) if it weren’t for its much-ballyhooed, late-to-the-game, announcement that it plans to cut the prices on thousand of food and essential items. 

Target’s revenue has been shrinking (comparable store sales were down 4% in 2023) and, as we noted here recently, most of the company’s revenue comes from non-food items. Target is flailing because shoppers are focused on food, travel, and entertainment instead of new bedding or apparel. 

Meanwhile, dialing back inflation seems to be going viral.

Aldi, a German chain already considered a super-low price grocer in the US and gaining market share, recently said it dropped prices earlier this month on more than 250 items. 

Food eaten away from home—restaurants and take out—was a standout for inflation over the last year, up more than 4% according to Federal Reserve data. Feeling the pinch, McDonald’s said it is rolling out a $5 value meal in late June.

The message seems to be that the strong are getting stronger and the weak are continuing to fade. Cutting prices is a brilliant marketing move when you’re already the category kingpin like Walmart, which can afford to spend some of its widening margin on growing its customer base.

For struggling companies like Target, cutting prices comes across as desperate, not strategic.

The outlook would seem to be elimination or consolidation of the laggards while the leaders expand their customer bases.

The lingering perception or fear of inflation seems likely to be around for awhile, a fact that agile, savvy companies will continue to exploit by paying attention to who their shoppers are and what they expect from their retailer or brand.


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pricing  retail pricing  Target  grocery  Walmart  costco  inflation  2024

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