Walmart to Take Another Bite Out of Grocery Prices (and Suppliers' Margins)

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WalmartIf you shop at Walmart (WMT) for groceries, your food bill is about to shrink.

The nation's largest retail chain is looking to provide some new financial relief to its shoppers -- many who are living in a permanent recession -- by offering lower prices on grocery items every day, Reuters reports.

The pricing adjustment at the retailer will mean the mega-bargains at its 3,868 U.S. stores won't just be limited to its well-known "rollback" sales promotions.

In turn, the chain is reportedly pressuring food suppliers to keep the wholesale prices low on everything from soda to cereal and pasta.

Walmart did not provide confirmation about its new pricing policy by press time.

Reclaiming Its Bargain-Basement Image

WalmartThe move comes as Walmart works to reclaim its image as the nation's low-price leader, one that's been tarnished as an expansion binge by dollar stores has eaten into the discounter's market share.

"Walmart is wise to leverage its cost advantage -- just as consumers are being pinched on energy prices -- and position itself as a problem solver for families," Craig Johnson, president of retail consultancy Customer Growth Partners, told DailyFinance. They're sending the message, "'We have little control over gas prices, but we can help you save on your grocery bills.'"

With this move, Walmart is also hewing to its core philosophy of "driving down sourcing costs and passing most of the benefits along [to consumers] in everyday pricing," said James Tenser, a principal with retail consultancy VSN Strategies.

The retailer, which boasts an estimated 25% share of the U.S. supermarket business, wants to hold on to its food shoppers by sweetening the deals in the grocery aisle.

High grocery prices "continued to be an issue for many of our customers," said William Simon, president and CEO of Walmart U.S., during the company's fourth quarter conference call last month. "A challenging economy and rising gas prices will continue to drive customers to seek value," Simon said. "We'll continue to help consumers adapt to such trends."

Putting the Squeeze on Suppliers?

But Wal-Mart's appeal to grocery suppliers to lower prices coincides with rising costs. For the fourth quarter, total grocery inflation was approximately 4%, Simon said, and "inflation continues to impact meat and selected grocery categories."

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It's no secret that the chain's sheer size means the retailer has major leverage over suppliers. Those that want to keep working with the chain will likely have to eat some of those higher costs.

"In order to protect their margins, stay competitive and keep costs low for the consumer, grocers like Walmart might be negotiating for wholesalers to absorb potential increased food prices," Greg Mulholland, an analyst at financial information firm Sageworks, told DailyFinance.

That could be a tall order in the wake of the commodity cost volatility of the past 24 months, Tenser said.

Still, "Walmart may see this circumstance as an opportunity to hammer harder on its rivals by reinforcing its every-day-low-price positioning," he said. "Suppliers can choose: Tighten their belts, or make a case [to Walmart] that some cost increases are unavoidable."


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