Walmart has a message for its vendors: keep those trade funds and put them toward the cost of goods. Walmart wants even lower prices so it can use the savings to put more distance between itself and competitors, many of whom depend on vendor dollars.
While it's not unusual for any retailer to pressure manufacturers for lower prices, the move by Walmart, first reported by The City Wire's Kim Souza in February and again this week by The Wall Street Journal, is seen as significant because of increasing competition from a wide range of rivals including Aldi, Costco, Dollar General and Kroger.
According to both reports, Walmart CEO Doug McMillon said the chain was going back to its roots and "playing offense with price" to help achieve market share gains.
The company's increased emphasis on price was recently borne out by a Credit Suisse study, which found the price gap on consumables between Walmart and its competitors grew to 17.9 percent in January, above the one-year average of 16.2 percent.
"It's a proven business model that works," Deisha Barnett, a spokesperson for Walmart, told the Journal. "We think the smart investment is to put the dollars into price."
While net pricing may benefit Walmart, the Journal piece points out that it may not always work to the advantage of vendors who use trade funds, in part, to differentiate from their competitors. Relying strictly on price with no control over displays and promotions could lead to further commoditization within CPG categories.
Vendors are also likely to hear grumblings from Walmart's competitors, many of whom already believe their larger rival receives preferential treatment from manufacturers when it comes to price and distribution.
- Wal-Mart to lean on suppliers for better prices, products, sustainable solutions - The City Wire
- Walmart Ratchets Up Pressure on Suppliers to Cut Prices - The Wall Street Journal (sub. required)
- Walmart To Its Suppliers: Cut Your Prices - The Wall Street Journal (sub. required)
- Foran updates progress in Walmart U.S., says more improvements coming - The City Wire
- Walmart has its pricing mojo working - RetailWire