Walmart's "Everyday Low Prices" Are DOA -- It's Just Another Discounter Now
The swan song of Walmart's vaunted "everyday low price" strategy may have been sung by Kroger (KR) CEO David Dillon.
Retail executives usually are reticent about taking shots at rival companies, but Dillon was ready to talk about Walmart (WMT) and its heavily publicized rollback strategy when the subject came up in the company's first quarter conference call last week. Asked about the campaign's effects, Dillon noted that the initiative "is a lot more consistent with a traditional grocery supermarket operation than it is consistent with what Walmart used to do."
Walmart, just another grocery store chain? Dillon suggested that Kroger -- and by extension, other successful supermarket operators -- had the experience and marketing skills to deal with a strategy that was relatively new to the supercenter but familiar to them from long years of the grocery wars.
Walmart hasn't been a everyday low price purist for many years. But Walmart's rollback program has been positioned as providing discounts beyond its everyday low prices. That's why the price breaks are called rollbacks instead of sales. Dillon said Walmart's new approach allows some of its other prices to creep up to compensate for the rollbacks. That's high/low pricing, which is something Walmart has avoided to distinguish itself in the market.
Getting away from everyday low prices potentially hurts Walmart because when it promotes specific rollback bargains instead of better prices across the board, competitors can counter-program its initiatives. The opportunity offered isn't limited to grocery departments. Best Buy (BBY) did something like that in the last holiday season on notebook computers. Those it promoted to beat Walmart prices may have been meagerly stocked and quickly sold out, but Best Buy made an impression. According to market research firm The NPD Group, Best Buy won more former Circuit City customers than Walmart as Circuit City liquidated last year.
Rodney McMullen, Kroger's president, said that the recent Walmart behavior is the latest phase in a longer trend, asserting, "Walmart really started getting more promotional on specific items, really, Thanksgiving last year."
The fact that Dillon and McMullen were emboldened to make the statements they did -- which Walmart could conspicuously refute if it chose to do so and polish its everyday low price credentials at the same time -- suggests there is something substantial to their tales. So does another statement, this from Walmart vice chairman Eduardo Castro-Wright. At Walmart's annual meeting, he stated that the company has "taken our promotional activity to a whole new level" based on the ongoing increase in rollback activity.
Castro-Wright characterized the move as part of Walmart's everyday low price strategy. Yet, the Walmart everyday low price strategy once promised that, despite spot discounts from rivals, the retailer would always win out on a market basket of merchandise without resorting to individual bargains. Clearly, that isn't the case anymore.
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