Last month, Walmart gathered some of America’s biggest household brands near its Arkansas headquarters for a tough talk. For years, Walmart had dominated the retail landscape on the back of its “Everyday Low Price” guarantee. But now, Walmart was too often getting beaten on price.
So company executives were there, in part, to reset expectations with Walmart’s suppliers — the consumer brands whose chips, sodas and diapers line the shelves of its Supercenters and its website.
Walmart wants to have the lowest price on 80 percent of its sales, according to a presentation the company made at the summit, which Recode reviewed.
To accomplish that, the brands that sell their goods through Walmart would have to cut their wholesale prices or make other cost adjustments to shave at least 15 percent off. In some cases, vendors say they would lose money on each sale if they met Walmart’s demands.
Brands that agree to play ball with Walmart could expect better distribution and more strategic help from the giant retailer. And to those that didn’t? Walmart said it would limit their distribution and create its own branded products to directly challenge its own suppliers.
“Once every three or four years, Walmart tells you to take the money you’re spending on [marketing] initiatives and invest it in lower prices,” said Jason Goldberg, the head of the commerce practice at SapientRazorfish, a digital agency that works with large brands and retailers. “They sweep all the chips off the table and drill you down on price.”
But this time around, Walmart’s renewed focus on its “Everyday Low Price” promise coincides with Amazon’s increased aggressiveness in its own pricing of the packaged goods that are found on supermarket shelves and are core to Walmart’s success, industry executives and consultants say.
The result in recent months has been a high-stakes race to the bottom between Walmart and Amazon that seems great for shoppers, but has consumer packaged goods brands feeling the pressure.
The pricing crackdown also comes in the wake of Walmart’s $3 billion acquisition of Jet.com and its CEO Marc Lore. Lore now runs Walmart.com and has said one of his mandates is to create new ways for the retailer to beat everyone else on price, including Amazon.
The pricing pressure has ignited intense wargaming inside the largest CPG companies, according to people familiar with discussions at Procter & Gamble, Unilever, PepsiCo, Mondelez and Kimberly-Clark. There is no one-size-fits-all solution.
“It’s dominating the conversation every week,” said an executive at one of these companies.
Representatives for these companies either declined to comment or failed to respond to requests for comment. Executives inside these companies would only speak on a condition of anonymity because negotiations with retailers are confidential.
An Amazon spokesperson said in an email: “At Amazon we protect low prices for our customers, every single day — nothing has changed in terms of our focus or how we operate.”
Walmart did not provide a comment.
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SOURCE: JASON DEL REY
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