Will Walmart throw high-price suppliers off the shelf?

Discussion
Black Friday action at Walmart – Photo: Walmart
Dec 19, 2022

Inflation has become enough of an issue to rattle Walmart’s everyday low price positioning and the chain is considering taking a drastic move that may keep its customers happy, but likely have the opposite effect on some of its suppliers.

Walmart is considering allocating more space in the center store to private labels and tertiary brands, taking the slots of products from those suppliers who refuse to keep their prices in check, according to Food Navigator.

The retailer sees inflation as being more stubborn in center store as in fresh, where prices on commodities like beef, fruit and vegetables have been experiencing some deflation. While the chain sees potential ways for suppliers to reduce costs, such as using more efficiently packed trucks and rail cars, many such solutions were already implemented in the earlier waves of inflation.

Tensions between suppliers and retailers have intensified over the past two years as the two sides of the value equation vie to make their margins at a time when customers grow more cash-strapped. Walmart is not the first major grocer to consider harsh moves against suppliers to control prices.

Loblaw and Metro in Canada, for instance, have been avowedly pushing back against supplier price increases.

At the beginning of 2022 the situation at Loblaw escalated. Frito-Lay Canada halted shipments to Loblaws stores due to the reported dispute.

But Walmart had a reputation for a willingness to squeeze vendors long before the series of shakeups brought on by the pandemic.

For instance in 2015, Walmart sent notices to 10,000 vendors telling them it would be charging stocking fees for products stored in new warehouses and stores. Walmart maintained that it had operated similarly in the past and was merely extending the practice to the entirety of its base of suppliers. In April of that year, the chain also reportedly planned to ask suppliers to fund its Savings Catcher program.

Inflation continues to be a major issue in grocery. While, as a whole, inflation has slowed to a 7.1 percent increase in November, grocery prices were up 12 percent year over year according to Yahoo Finance.

DISCUSSION QUESTIONS: How effective will Walmart’s threat of delisting products be in getting center store grocery suppliers to moderate prices? Will lower prices result in reduced promotional budgets for consumer packaged goods companies?

Please practice The RetailWire Golden Rule when submitting your comments.
Braintrust
"This is what Walmart should be doing given its sway and its positioning."
"...there can be a break point where brands won’t be able to exceed without truly biting into profits. This is where contracts will be reviewed."
"This is a high-stakes game. If brands comply, competing retailers will immediately demand equivalent pricing, and they will cite anti-trust statutes in their negotiations."

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20 Comments on "Will Walmart throw high-price suppliers off the shelf?"


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Michael La Kier
BrainTrust

There’s a difference between threats and action. Standing up to manufacturers’ price increases (on behalf of shoppers or for their own benefit) is a noble cause. And, in some cases, it can work to hold the line. In some cases, some brands will be gone. That being said, consumer-loved, shopper-relevant brands (that drive revenue) are not likely to be kicked to the curb.

Mark Ryski
BrainTrust

Putting pressure on suppliers is old school for Walmart, so nothing new here. However perhaps what is new is how aggressively Walmart is applying the price pressure on suppliers. When Walmart puts pressure on their suppliers something has got to give. Every dime of margin that gets squeezed from suppliers will impact their own budgets, whether that’s promotional activity, new product development or even their own staffing levels. I appreciate Walmart’s commitment to keeping costs low for their customers, but sometimes their methods for achieving this can be harsh.

Scott Norris
Guest

And these pressures also continue to cull the small and midsize vendors who do not themselves have pricing power with their upstream suppliers, and do not wish to merge or be acquired by larger vendors. Ultimately Walmart boxes themselves in, as only giant vendors who can in fact say “no” — with D2C or preferential arrangements with competing retailers — can afford to deal with them. Or Walmart triples down on private label, but then sacrifices their own profitability the next time cost reductions are called for.

Jeff Sward
BrainTrust

When your core brand promise is “everyday low prices,” then it is absolutely incumbent upon you to push back hard on behalf of your customers. Because undoubtedly, Walmart’s customers are pushing back hard on Walmart with their evolving shopping and buying patterns. The most precious asset a brick-and-mortar retailer has is its physical space and the productivity of that space. The retailer is constantly monitoring the productivity of the space for every product. If rising prices take the productivity of any space to an unacceptable level, then they are going to push hard to get that productivity back. Either through reduced prices or alternative products.

Ken Lonyai
BrainTrust

I applaud and agree with Walmart on this one. There’s a lot of moving pieces in play around inflation and gouging is one of them.

They can argue that it’s the high cost of transportation (oil). They can claim it’s the labor shortage. They can cry that skyrocketing fertilizer prices and scarcity push prices up. They can pound their fists that imports and supply chain shortages have made some ingredients hard to get. Yet many, many suppliers have record profits and I haven’t heard them complain a word about that.

There’s no one correct answer to these situations and someone always gets hurt. Walmart is not wanting to lose customers and by proxy is standing up for shoppers, which sends a nice message to the price gougers that it might be time to back down.

Lisa Goller
BrainTrust

Walmart has enviable negotiating power. As an EDLP and grocery leader, the world’s biggest retailer seeks economies of scale as value shopping soars. CPG brands need to offer unique products and value for money to stay on Walmart’s shelves.

Lower prices may shrink CPG brands’ promotional budgets to protect margins as consumers seek deals.

Dr. Stephen Needel
BrainTrust

It’s a little unfair, in that not every cost is controllable for a vendor. And Walmart’s history of price pressure may have already taken out the slack. That said, I commend Walmart for being customer-centric. If you can’t afford to sell products in Walmart, don’t sell them.

Melissa Minkow
BrainTrust

This is what Walmart should be doing given its sway and its positioning. It’s not an easy time for manufacturers, retailers, or consumers. However when a retailer stands on EDLP, it has to put its money where its mouth is versus making customers pay.

Steve Montgomery
BrainTrust

Threatening its suppliers over their costs is nothing new for Walmart. How effective it will be will depend on several factors including how much of a supplier’s sales are dependent on Walmart’s business. How important that brand is to shoppers is another. A final factor is how many alternatives to that brand’s products there are and their cost.

David Spear
BrainTrust

Most of the large CPG manufacturers have had tremendous Q2 and Q3 financial performances. I’d submit a select few have recorded their “best-ever” numbers in a long time, primarily due to price increases. Walmart is completely justified in their two pronged strategy of 1.) pushing back against center-store vendors, and 2.) promoting their own in-store brands. And, yes, there will be some brands that will get mad, try to hold their ground and Walmart will pull their products. We’ve seen this movie before and Walmart usually comes out on the winning side with respect to their shoppers and investors.

Gary Sankary
BrainTrust

With 6 percent of the total retail market in the U.S., Walmart’s power allows them to do a lot of things that smaller players just can’t pull off. Walmart is doing precisely what they’ve done for years: advocating for their customers. Kudos to them for doing that.

I think brands need to be careful about how they react. Walmart’s vendor ecosystem has many examples of companies who threatened to pull out or tried to bully Walmart on several issues. Given their strength in marketing and private label, it’s easier for Walmart to “shelve” a brand than for a brand that has been working with them for years to stop selling there suddenly.

Matthew Pavich
BrainTrust

Walmart should definitely be focused on their consumers right now and do what it takes to offer the right prices. Not every retailer, however, has Walmart’s leverage or structural advantages, so they need to be more analytical and balanced in their approach — knowing where and when to pick their negotiation battles and using the best predictive pricing analytics to drive better outcomes. Vendors are also getting squeezed and moves by retailers will impact trade funds for promotions and other support, so retailers also have to be savvy and analytical in their promotional practices to drive the best outcomes while maximizing vendor fund allocation. Now is definitely not the time to ignore your price image — retailers who offer the right prices on the right products through all of the right channels will gain share during this time when consumer budgets are very tight.

Brian Cluster
BrainTrust

Many American households are struggling and looking at options on how to reduce the impact of inflation. The grocery budget is one of the easiest to control and consumers may look at other retailers outside of Walmart such as dollar stores or discount grocery. As an EDLP leader, it is their obligation to blunt the raising costs and work with suppliers. Walmart will be effective in containing costs with suppliers and we will likely see some churn and changes on the shelves.

Ananda Chakravarty
BrainTrust

Walmart’s threats will be as effective as they want. The organization has the broadest reach and is the largest distributor for any brand or CPG. Walmart has the advantage of many brands to fill in the shelf space. Suppliers have limited choice but to comply with pricing restrictions, although they can design or introduce shrinkflation options, smaller packaging, dated inventory, and other methods to reduce impact to their margins. Protections for brands include long term commitments and clauses allowing for methodical change in pricing and fees given economic conditions. However there can be a break point where brands won’t be able to exceed without truly biting into profits. This is where contracts will be reviewed. Promotions are not always tied directly to products and slotting fees, not expecting these to shift with contracts. Walmart’s move has a consumer driven value of reducing price gouging and overreach by brands. Some CPGs will need to revisit their supply chain efficiency to maintain margins.

Mark Self
BrainTrust

It depends on the brand in question. WM has a long successful history of driving prices down by putting pressure on suppliers/brands. If the brand has perceived or real “pricing power” and the items continue to sell, then nothing of interest will happen here. If not, that will open up shelf space for others, simple as that.

John Karolefski
BrainTrust

It would not be surprising if Walmart replaced branded goods with more private labels in its center store assortments. Shoppers are looking to economize since grocery prices continue to increase. Kroger introduced 147 store-brand products in the third quarter.

Craig Sundstrom
Guest

“…Vie to make their margins” and there in five words you have the inflation story: every seller — be they manufacturer, wholesaler, or retailer — feels that prices should be lower … just not their prices. I won’t hazard a guess as to how effective this will be, but as the biggest grocer in the country, Walmart has the best chance of pulling it off.

James Tenser
BrainTrust

Walmart’s declaration must be seen as an opening gambit. It is shrewdly putting suppliers on notice that it will not accept further price hikes that reduce the size of shopping baskets. Why? Because that cuts into Walmart’s profits and also hurts shoppers.

This is a high-stakes game. If brands comply, competing retailers will immediately demand equivalent pricing, and they will cite anti-trust statutes in their negotiations.

If brands stand fast, they risk losing distribution power — not to mention consumer good will. In the process, they may inadvertently demonstrate they are not as essential as they would like to believe.

Shep Hyken
BrainTrust

I get why Walmart wants to take this action. By the way, they have always put pressure on their suppliers and vendors. However, these suppliers and vendors can’t cut margins so thin they lose money. (Not a great business strategy!) As inflation and costs increase, Walmart must partner with their suppliers for a win/win.

Anil Patel
BrainTrust

Walmart has high in-store footfall because of its affordable finds. Amid high inflation, customers have started rethinking their purchasing habits, so I believe it’s right for Walmart to offer more space to its private labels. Speaking of suppliers, since their aim also revolves around profit-making, we cannot blame them for charging competitive prices. Therefore no one is to blame here. Ultimately, be it retailers or vendors, everyone is trying to manage in the market.

wpDiscuz
Braintrust
"This is what Walmart should be doing given its sway and its positioning."
"...there can be a break point where brands won’t be able to exceed without truly biting into profits. This is where contracts will be reviewed."
"This is a high-stakes game. If brands comply, competing retailers will immediately demand equivalent pricing, and they will cite anti-trust statutes in their negotiations."

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