Source: Walmart
Will Walmart’s price push pull customers away from Aldi?
There aren’t many grocers who can go head-to-head with Walmart on groceries and come out ahead in the matchup. Aldi is one of the few and it appears Walmart management has decided to sharpen its price focus to put some separation between itself and its small box grocery competitor. Reuters reports that the world’s largest retailer has launched a price test covering 1,200 of its stores in states across the Midwest and Southeast.
The news service, which conducted market basket checks at stores in Illinois and Iowa, found Walmart had “consistently” lower prices than Aldi. This was a reversal from previous analyst findings that put Aldi’s prices about 20 percent lower than Walmart’s.
News of Walmart’s price test follows meetings the chain had with consumer packaged goods vendors last week at which the retailer demanded price concessions. Unnamed vendors told Reuters that Walmart expects them to help the chain beat rival prices “80 percent of the time.”
While price is central to Walmart’s branding, the retailer is also turning to technology to improve its service perception. Walmart has rolled out two new features on its mobile app that appeal to some of its most important customers.
The first allows pharmacy customers to refill prescriptions using mobile devices. Customers can now skip lines when picking up prescriptions at Walmart pharmacies. Pharmacy and over-the-counter remedy sales account for 10 percent of Walmart’s domestic revenue, according to CNBC.
“By developing and combining the best of our app with a service that our customers depend on daily, we’re driving change that makes living better easier,” said Paul Beahm, senior vice president, Walmart Health and Wellness Operations.
The second enhancement allows customers of its Money services to use the app to submit information for the transaction privately rather than filling out paperwork in stores. Here too, customers using the app can skip the line to complete their transactions. One in five customers, according to CNBC, conduct financial transactions while in the chain’s stores.
Discussion Questions
DISCUSSION QUESTIONS: How do you expect Walmart’s price competitiveness and its mobile app enhancements to affect its business in the near term? Will price or service improvements be more important to Walmart achieving incremental sales gains over the next five years?
Poll
BrainTrust
Tom Redd
Global Vice President, Strategic Communications, SAP Global Retail Business Unit
Anne Howe
Principal, Anne Howe Associates
Price is key to Aldi’s value equation, but it’s not the entire picture.
Lots of small buildings close to where people live and work and a truly low-cost operating model give Aldi a competitive edge.
You can squeeze national brands for a bit of margin, but the gaps in value (real or perceived) are more complex.
That said, if Walmart can get credit for and sustain what may be regained with price leadership, it absolutely has potential to improve performance in the near-term.
Props on hitting the nail with the first comment out of the box this morning Keith!
Aldi is an experience — just like Trader Joe’s. (Hard to believe they are part of the same family given the differences — but it is the similarity that is key. They are both uniquely positioned and stick to what they are religiously.)
Walmart may slow some market share shifting at the margins. But they will not stop Aldi’s expansion. No matter how hard they squeeze vendors for price concessions.
Walmart is all about price – they have to continue to be perceived as the low price player. I’m not sure Aldi is necessarily their competitor in price, except that private label products need to be at or below Aldi’s prices. I don’t think the app enhancements will make THAT much difference.
When “always” has focused your brand and competitive advantage on price, it is pretty hard to ignore the inroads made by Aldi based upon lower prices.
Pricing today is a very slippery slope, even for the giants like Walmart. Consumers are not just shopping the store down the street, but for deals that they can get online, delivered to their door without the hassle of waiting in line.
Omnichannel shoppers today are rapidly re-evaluating the four Ps (Place, Product, Price, Promotion) and replacing them with the four Cs (Custom, Choice, Convenience, Communication). Walmart’s mobile app would seem to be much more aligned with the four Cs and offer consumers more value that would create a relationship beyond a product at a price.
Price will win this battle. Service is not a big issue with Walmart customers in smaller towns. Lidl is a huge threat to both Aldi and Walmart and local grocers — like Spartan foods and their stores. Competition is good for us shoppers. May the best win.
While I understand the price push, especially versus Aldi, Lidl and the dollar stores, in the long run Walmart needs to invest in technology and enhanced service if it expects to win the brick-and-mortar battle. I’m not sure if the recently announced apps are breakthrough concepts.
Walmart is currently involved with vigorous competitors on all fronts; from traditional food retailers to extreme value retailers to online players. Each competitor represents unique challenges for Walmart and it needs to insure it doesn’t drift into the big middle of food retailing, which was its battleground when it emerged as the world’s largest retailer. I do like that the company is not complacent. However, its level of investment and experimentation will have to remain at a high level as it faces these various attacks on all sides of its fort.
Price has always been Walmart’s game but if they can add better services to already low prices, that could be the magic bullet.
Walmart certainly has come out swingin’ and with some smart moves. As long as they keep their eye on their customer and don’t get caught up in innovation for innovation sake, they are moving in the right direction.
Kudos and my 2 cents to Walmart.
I don’t shop Walmart so I don’t know, but I can assume what kind of grocery offerings they have. We did try Aldi once due to the hype and found nothing of a quality we would buy. Most of the off-name packaged products seemed like house brands, so I wonder how baskets are compared to Walmart. Additionally, there was a limited selection meaning that it was unlikely to be the sole grocery destination for shoppers.
The takeaway is that Aldi seems as if it can only serve limited markets and are going to top out market penetration/growth as a result. Walmart or anyone else that can do better (doesn’t seem too hard) and can beat them on price, is my bet for putting a hurting on them.
I can’t imagine enough Aldi shoppers will change their main grocery retailer to make a huge difference to Walmart. If brands are the deciding factor to a shopper, s/he probably isn’t a loyal Aldi devotee anyway. So the fact that Walmart is demanding concessions from vendors is hard for me to rationalize. The shipping experience is so radically different, and likely to take much more time, that shoppers may just not be willing to re-think and change habits for a few dollars of savings.
I notice many high-end automobiles in Aldi parking lots. These affluent shoppers like the quickness of shopping the smaller stores, the quality of many of the private label brands and of course the prices. I don’t see this move by Walmart drawing many of those shoppers away from Aldi.
The original question was, will Walmart pull business from Aldi? Maybe a little, but Aldi is known for better quality, better customer service and a better class of employees. Aldi in my opinion is so far ahead on price, no other retailer is going to make a dent. App enhancements will certainly help at high-volume stores. Price and service improvements will have about an equal value. My gut feel is over the next five years other challenges will face Walmart that will make their app enhancements have minor relevance.
This is a price battle but because of Aldi and Lidl having a limited number of items there is room for variety and custom programs to help offset the apparent need to match or beat the competition on those items. As more Walmart customers take advantage of the extra services some of the pressure will shift to the conventional grocers that Walmart competes with. Store by store pricing customization will be critical to competing with these limited-assortment smaller-footprint retailers.
Aside from the Neighborhood Market stores Aldi has an advantage of convenience. But the no-frills and limited selection model of Aldi suffers if pricing is better at Walmart.
I think Walmart wins this battle because they are essentially moving the battle line to their advantage.
Aldi is focused primarily on private label at an attractive price point. In addition to some locations that are neighborhood stores, they have been locating as near as possible to big box/mass retailers for decades and living off the fact that people will shop them for certain items and go somewhere else for the rest of their basket. As of late they have been sharpening their produce quality in a much easier to shop store size while maintaining good price points as they try to attract more business.
On the other hand, Walmart still appears to struggle with out-of-stock conditions (especially in produce) and is going to have to really improve price perception on national brands to compete with the stronger private label perception at Aldi. Neither of these formats offer much in the way of service and I don’t expect that to become a competitive differentiator here.
Allowing consumers to have the lowest prices for the product they want or need is now only half of the performance level needed to compete for their business. Consumers are in tune with the retail methods available to them and selecting from the venue that best suits their needs.
Aldi is still new to plastic transactions and light years from other options. Dollar stores are in a similar situation. Both are betting on price solutions to face the moribund economy on a daily basis. E-commerce and delivery offerings are the means to grow a company in the shrinking world economies. What is more interesting is how these two retail methods will face the future world market now in separatist mode all over the planet. Adding to this contest is the fact that the dollar is no longer a mandatory transaction tender. Three years ago, very few large companies even dreamed of a nightmare like this, let alone how to face it.
What has changed at Walmart that is making them more customer conscious? Certainly it is not the floor staff. They still have a weak attitude and approach to the customer. That could be a downfall if Aldi has any semblance of customer service.
Could the change at Walmart be they are hearing footsteps closing in behind them?
This is a great move by Walmart, but only a temporary fix. Aldi has superior pricing because of superior category management. Beating up on suppliers to provide better pricing is never the long term solution to pricing. Walmart knows this and we will see what their longer term solution appears to be. This is certainly not the way to attract customers, or keep suppliers!
Aldi is the 8th largest retailer in the world with $82 billion in sales. Aldi has a tremendous business model and price is only one component. 1) Private label products that look and taste as good as the branded products they mimic, 2) well stocked stores, 3) friendly, and inspired employees (not just because they get paid more — but from a great culture and training), (4) limited assortment but all the categories needed for any household are covered (5) convenient locations (6) price/value that can’t be beat due in part to their low SG&A.
Just as the dollar channel has hurt Walmart, Walmart should be scared of limited assortment. However, instead of lowering their prices, I suggest they give up on that customer and invest in better stock service levels and the customer experience to take more of trips from “switchers” who also shop Walmart traditional supermarket competitors.
Lidl is the 4th largest retailer in the world with $94 billion in sales. Together with Aldi, they have taken huge chunks of market share in the UK. Now both German retailers, with stores that are nearly identical to each as well as business models, are expanding in America. Save-A-Lot hasn’t expanded fast enough.
Convenience (speed of shopping as my friend Herb Sorenson has researched and written about) plus value is a winning formula for today’s shopper and tomorrow’s Millennial shopper too!
Aldi’s success is based on convenience (due to format & size of the store) and value (based on both price and overall shopping experience driven in large part by their associate staff). Walmart’s price reduction will only serve to please their existing “everyday low price” loyal customer — who probably isn’t going to shop at Aldi anyway.
Service improvements via enhancements to the Walmart app may have more of an impact to the customer that’s likely to try Aldi. These are customers who receive added value from Walmart via the app beyond “low prices.” This creates more stickiness for those customers.