Amazon.com's acquisition of Whole Foods for $13.7 billion last month signaled the e-commerce giant was serious about becoming a major player in the grocery industry.
But Wal-Mart Stores Inc. is winning the price war on groceries, according to a recent note published by Gordon Haskett Research Advisors.
The note indicated a basket of Amazon Fresh products was 16.1 percent more expensive when compared with the same items at Wal-Mart in June. It was an increase from a 14.6 percent premium in May. Gordon Haskett senior analyst Charles Grom wrote that Wal-Mart specifically was "getting more aggressive on food prices into the Fourth of July."
Gordon Haskett has been keeping tabs on pricing throughout the $700 billion grocery industry. The firm is conducting monthly studies on a basket of about 45 items in five major markets: Los Angeles, Chicago, Houston, Boston and Atlanta.
In its latest report, Wal-Mart remained the price leader among "middle market" grocery retailers like Amazon, Target and Kroger. Regional stores Albertsons, Randalls and Shaw's were also included. Wal-Mart's prices in the five-market test last month were 9 percent lower than Kroger's and 7.3 percent lower than Target's, according to the research note.
"For the third consecutive month, Walmart expanded its lead versus peers in our study," Grom wrote in the note. "Specifically, Walmart now has a 13.5 percent price advantage over its competition in the five regions that we monitor, up from 13.2 percent in May and 11.8 percent in March."
Success in the grocery aisles is critical for Wal-Mart because food sales account for about 56 percent of the company's revenue. But maintaining its market share has become more challenging because of pressure from all sides with competitors like Amazon, Kroger, German discounters Aldi and Lidl, and the dollar stores.
Wal-Mart has fine-tuned its private label offerings, improved its fresh food selection and cleaned up stores to compete with other grocers. It has emphasized convenience as well with its grocery pickup service, which is available in more than 800 locations.
One other aspect of Wal-Mart's strategy has been aggressively lowering prices in certain markets.
"Pricing is not an on-off switch for us, but 18 months ago we talked about that we were going to put several billion dollars into pricing," Wal-Mart Chief Financial Officer Brett Biggs said during a presentation at the dbAccess Global Consumer Conference last month. "Price matters and it will always matter, and so customers noticed that as well."
The Gordon Haskett study highlighted one example of Wal-Mart's tactics, saying a 12-ounce package of cheese had been lowered from roughly $3 to 60 cents leading up to the holiday.
Grocery analyst David J. Livingston said the efforts aren't enough to solidify Wal-Mart as the clear-cut leader in grocery prices. He said discounters like Aldi will continue to consistently produce lower prices. But Livingston believes the retail giant remains "the bar for pricing" in the grocery industry.
"Wal-Mart is going to continue to try to be innovative in ways to squeeze out costs and maintain their position," Livingston said. "Wal-Mart doesn't want to lose their position in the pricing totem pole."
Grom cautioned in the Gordon Haskett research note that Amazon is "getting more aggressive" on pricing in the Atlanta market. Amazon Fresh prices were just 1.8 percent more expensive than at Wal-Mart. The price difference continued to shrink from 4.8 percent in May and 8.6 percent in April.
But Livingston doesn't see Amazon posing a major threat to Wal-Mart's position on the pricing front even after the Whole Foods acquisition. The company purchased the high-end grocer and its roughly 450 stores with plans to continue operating the chain under its own brand.
"Nobody shops Whole Foods because of the price," Livingston said. "They shop for the quality and the experience. Will they become more price competitive? Possibly. But I don't know if that's the goal."
Carol Spieckerman, a retail consultant and president of Spieckerman Retail, agreed and said the acquisition presents more of a threat from a convenience perspective. She believes Amazon will likely leverage the brick-and-mortar locations as delivery hubs and emphasize its "private brand aspirations."
While price is important to Wal-Mart in the battle for grocery dollars, Spieckerman said other efforts -- like expanding and improving its private-label offerings -- remain key in the grocery competition.
"Perhaps Amazon will help Whole Foods fully realize its earlier ambition to open stores dedicated to its private brands," Spieckerman said. "Either way, Wal-Mart's move to expand its Great Value brand into organics was prescient and important in light of Amazon's acquisition."
Business on 07/18/2017