Walmart jumps into pricing war with dollar retailers
- Walmart lowered its prices on consumable goods during the past year to compete with value retailers. This strategy has led to downgraded shares at Big Lots, Dollar General and Dollar Tree, according to MarketWatch.
- A note from Raymond James finds that Walmart and Dollar General have been in line on pricing, indicating that Walmart is reinvesting some of the tax savings from the new federal overhaul into this effort to grow market share. From February to April 2018, prices at Walmart declined nearly 4%.
- In addition to targeting dollar stores, Walmart started a new price-comparison test in at least 1,200 of its stores last year in a bid to “close a pricing gap” with discount grocery chains such as Aldi. For that initiative, Walmart said it would leverage its supplier relationships to beat rivals on head-to-head pricing, according to Reuters.
If Walmart’s goal is to gain in-store traffic in a broader attempt to gain overall market share, lower prices on everyday items such as laundry detergent and cereal is a practical short-term answer. A bigger concern is whether or not this approach is sustainable in the long term without eating into profits, though Walmart has the size and might to negotiate lower prices with manufacturers.
Targeting dollar stores makes plenty of sense if the goal is to gain market share. Recent research by Ripple Street shows 30% of customers shop at this category more often than they did last year. Walmart can poach those customers by working this pricing angle as well as promoting its robust online presence and its broader inventory, including grocery. Though Dollar General is testing fresh produce in some of its stores, it has an extensive game of catch up to play with Walmart’s grocery business, which makes up 56% of the chain’s overall sales.
That’s not to say dollar stores should wave a white flag. Their ubiquitous footprints give them a win in the convenience category — there are about 27,000 combined Dollar Generals and Dollar Trees in the U.S. versus fewer than 12,000 Walmarts. Dollar stores also have smaller store formats, which enable quicker shopping experiences and less crowds — a win in the speed category.
If its main target is indeed dollar stores, Walmart is wise to focus on what attracts consumers to those outlets, which is more than just pricing. In this on-demand culture, research shows that consumers are willing to pay a little more for speed and convenience. Perhaps that should be the focus for Walmart in the long term. It's got a good head start by offering the types of services dollar stores just cannot, like free store pickup — set to be an option at half of the chain's stores by the end of the year — and home delivery, which will be available by the end of the year in 100 cities.
- MarketWatch Walmart takes on dollar stores with lower prices
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