How should vendors respond to Walmart’s reluctance to raise prices?
Through a special arrangement, presented here for discussion is a summary of a current article from Frozen & Refrigerated Buyer magazine.
Vendors tell me it’s just about impossible to get a price increase through Walmart, even after showing their costs have risen significantly. Should they continue doing business with the big box despite untenable margins? Should they drop what is likely their biggest customer?
Smaller vendors wonder if Walmart is harder on them than the big brands, but I couldn’t find evidence of that. Walmart apparently beats up everybody equally.
Says one trading partner, “They will still push back at you even if you bring in a cost breakdown. Some folks are just saying, ‘I can’t continue to ship to you because my costs are rising and there has to be an increase.’ Concessions are rare. Walmart has become increasingly demanding on a lot of fronts in the last 18 months or two years. It wants to keep that 15 percent price spread against their competitors. Sometimes they can, sometimes they can’t.”
It’s a frustrating dilemma for many vendors who face increases in such things as health care costs, utilities, commodities and wages. One thing is sure: Quality will drop as vendors are forced to cut corners. That will be true for vendors who decide to stay with Walmart, or with new vendors replacing the ones that walk away. And because of Walmart’s enormous power in the marketplace, there will be a ripple effect across much of the grocery industry.
Don Stuart, managing partner at Cadent Consulting, sees Walmart as ground zero where pricing starts. “Let’s say that for whatever reason, Walmart is enjoying a 15 percent pricing advantage. That’s where the industry’s pricing starts. Then pricing ripples out to the first ring of influence — let’s say Kroger. And then out to a second ring of influence — let’s say Publix.”
Walmart declined comment, saying they “don’t talk publicly to our negotiations with suppliers.”
Yet Walmart doesn’t want its relationship to other retailer pricing to change. And what with Amazon.com, Aldi, Lidl and others putting on the squeeze, as well as Walmart’s own sluggishness in the recent past, it’s easy to see why the mega-chain is worried and pushing on same-store sales growth.
DISCUSSION QUESTIONS: What should vendors do about retail customers being unwilling to support higher prices amid rising underlying costs? What leverage may vendors have in such pricing negotiations?