Walmart Inc. is warning major packaged goods manufacturers that it can no longer tolerate its price increases by pitching its own private label products to shoppers as cheaper alternatives to suppliers’ branded products.
For the world’s biggest retailer, which reports earnings on Feb. 21, any price increase – even just a few cents – could backfire, sending some shoppers looking for bargains at thrift stores or department stores like Costco.
Walmart, which promotes its “everyday low price” policy, raised prices last year on milk, frozen meals and Tide detergent, to name a few, as its suppliers struggled with rising costs on everything from chemicals to wheat. and fuel.
But now, with the cost of cartons down 40 to 50%, the cost of shipping down 25 to 30%, and the cost of raw materials going down significantly, “retailers like Walmart will say ‘hey, you’ve had three rounds of price hikes last year, why are you giving us another one?’” said Burt Flickinger, managing director of retail consulting firm Strategic Resource Group.
Rod Little, CEO of Schick razor maker Edgewell Personal Care Co., told Reuters it “will be very difficult” to pass on further price increases to retailers going forward. Walmart is Edgewell’s biggest customer.
“(Walmart) told us, ‘From here, our consumer is challenged, we’re going to take care of the consumers, so you’re going to have to have good reasons if you want to raise the price from here,’” Little said in an interview.
“As the consumer is now under more pressure and Walmart is under pressure, this creates a dynamic where there probably won’t be a lot of pricing going forward.”
Walmart did not respond to a request for comment.
At Unilever, a purveyor of Dove soap, Knorr gold cubes and Hellmann’s mayonnaise, CFO Graeme Pitkethly said on Thursday it “has not yet passed the price peak”, even after implementing a record average price increase of 13, 3% in the fourth quarter of 2022. Unilever estimated a material net inflation of EUR 1.5 billion (US$ 1.6 billion) in the first half of this year.
Procter & Gamble, maker of Tide detergent and Pampers diapers, said Jan. 19 that it would continue to raise prices despite falling volumes. It sells more than $10 billion worth of products through Walmart.
To be sure, Walmart has the upper hand. Its own brands, Great Value and Equate, compete directly with Unilever’s and P&G’s product lines in the United States. Forty-three percent of all private label packaged goods purchases made online in the U.S. were at Walmart.com, according to research firm Numerator, which measured transactions in the last quarter of 2022.
Walmart’s influence over suppliers also means that Walmart would likely get the smallest percentage of any price increases implemented by manufacturers, according to investors who follow the company. “Walmart is just a conduit (to P&G and Unilever) that uses its sheer size to deliver the best possible deals to customers,” said David Klink, senior equity analyst at Huntington Private Bank.
“We think Walmart can emerge with less of an impact on consumer goodwill than these other companies in a rising price environment,” said Kilnk, whose company owns more than $45 million in Walmart stock.
Walmart has already pulled products from shelves over pricing disputes. In 2018, Walmart pulled Campbell Soup Co. during the main winter season due to a dispute over pricing and shelf space promotion.
Across the pond, disputes between Britain’s biggest supermarket chain, Tesco, and Kraft Heinz led to Heinz beans being pulled from shelves. At the time, Tesco labeled Heinz’s price increases as “unjustifiable”.
Huggies diaper maker Kimberly-Clark said it is incorporating additional pricing this year, while toothpaste maker Colgate said it plans further price hikes in the first half of 2023.
“We are trying to figure out with our suppliers (dry groceries and consumables), what could we do differently to help reduce some of these costs?” said Walmart CEO Doug McMillon at an investor conference in December.
“Unfortunately, some of these vendors are still pointing us towards more inflation next year, above mid-double digits this year. And we don’t like that for no reason,” he said.
Shoppers at chains like Walmart and Kroger were waiting longer to buy new products, such as bleach and cat litter, and in some cases negotiating to buy smaller sizes or larger quantities at wholesale because they want more value per unit, Clorox’s CFO said. , Kevin Jacobsen, in February. two.
After raising prices four times in 2022, he said, Clorox has “no further plans” to raise prices this year.