Wal-Mart is now pushing its grocery suppliers harder to offer consistently low prices, instead of timed promotions or "rollbacks." That means food companies are unlikely to be able to pass through more price increases and will be forced to pull other levers, such as cost-cuts to protect margins or product innovation to drive sales.More Self-Checkout Lanes Coming Up
"I think we reached the wall in terms of raising price. Consumers can't take any more," said Edward Jones analyst Jack Russo, citing recent Nielsen data showing correlations between price increases and declines in sales volume.
"A lot of these companies are going to have to get back to basics and not raise prices much, and if they want to grow sales they're going to have to do it through innovation, or being razor-sharp on pricing."
For example, General Mills' sales volume fell 11.3 percent in the 12 weeks ended February 18 after the cereal maker raised its average selling price by 11.5 percent with a combination of price hikes and a mix of higher-priced goods, Russo said, citing Nielsen.
FROM "ROLLBACKS" TO "EVERY DAY LOW PRICES"
For Walmart, the biggest grocery seller in the United States, lowering prices on a long-term basis can help it convince shoppers that it is the best place to go for everyday items.
With gasoline prices climbing and many shoppers living from paycheck to paycheck, Walmart wants to win a larger share of shoppers' limited spending , after having lost some customers to dollar stores during the last recession.
"We want to work with vendors on that to see if we can take a price lower and leave it there permanently," Wal-Mart Chief Financial Officer Charles Holley told reporters last month. "The price image for a customer is very important."
Last August, Clorox raised the price of Clorox bleach by 12 percent in the United States, but Walmart kept the price tag steady.
Wal-Mart said margin declines are likely to persist. Walmart U.S. is cutting $2 billion of costs over two years, trimming spending everywhere from construction to staff scheduling. Greeters on overnight shifts, for example, were moved to roles such as restocking shelves.
Wal-Mart's urge to maintain low prices rather than offer short-term sales puts more pressure on vendors.
"For most categories that Wal-Mart competes in, they are in the driver's seat, they can make or break a manufacturer's year," said Telsey Advisory Group analyst Joseph Feldman.
Reuters reports Wal-Mart to add more self-checkout lanes.
Wal-Mart Stores Inc will add more self-checkout lanes at its Walmart and Sam's Clubs stores as it continues to look for ways to lower costs and prices, Chief Financial Officer Charles Holley said on Wednesday.Price, Job Pressures Everywhere You Look
Holley said he was "very pleased" with traffic and sales at Walmart's U.S. stores this quarter, which started in February. Shoppers using their tax refund checks helped drive some of the sales, he said.
While Wal-Mart expects inflation to moderate this year, gasoline prices remain a "wild card," Holley said. "If oil continues to go up, I think that can be a drag on economies around the world."
Pushing more shoppers to scan their own items and make payments without the help of a cashier, has the potential to save Wal-Mart millions of dollars. For every one second in average transaction time at the Walmart U.S. chain, the company said it spends about $12 million in cashier wages.
The company will not eliminate cashiers, but it does plan to open more self-checkout lanes at Walmart, where some 1,600 of the more than 3,800 U.S. stores already have them. At the Sam's Club warehouse chain, about 80 out of 611 stores already have self-checkout lanes and another 220 will get them this year, Holley said.
More self-checkout lanes equals fewer hires, no matter what Holley says. It's one of the ways Wal-Mart is handling its own price squeeze. Suppliers have their own margin issues to deal with.
Price paid in the service sector have gone up 31 consecutive months as reported in the ISM Non-Manufacturing Report . Prices received are another matter as Wal-Mart shows.
For a look at JC Penney's pricing scheme launched in January, please see Chart of the Day: Apparel Import Data in Square Meters and Dollars; J.C. Penney's Slashes Prices on All Merchandise by "At Least 40%", Offers Every Day Low Pricing
Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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