- Walmart is working with suppliers in its grocery consumables business to “get costs down more as fast as we possibly can,” CEO Doug McMillon told analysts last week.
- McMillon said that general merchandise prices have receded from inflationary surges, but “dry grocery and consumables have held,” with prices continuing to rise and creating a problem for consumers “living paycheck to paycheck.”
- “We do need some of these branded suppliers that are in dry grocery and consumables to get top line focused more than they have been for a while,” the CEO added.
Many of the supply chain snarls that gave rise to historic inflation have eased over the past year, yet inflation has persisted. The result has pitted retailers against suppliers in some cases, including the largest retailer in the world.
Most commodity input costs fell last year from their previous peaks, with ocean freight, cotton, steel and lumber seeing some of the biggest drops, AlixPartners found in an analysis of Mintec Global data earlier this year.
David Bassuk, a managing director with AlixPartners and author of the analysis, encouraged retailers to negotiate savings of 15% to 25% with suppliers, which they could do largely by “clawing back most of the cost increases taken over the past two years.”
Some retailers are indeed negotiating on price, which has become public in some cases. The CEOs of spice brand McCormick & Company and Edgewell Personal Care (owner of brands such as Schick, Edge and Banana Boat) both cited Walmart in the press as among the retailers pushing back on cost increases.
Generalists like Walmart and Target, which have broad product assortments that include both discretionary and consumable categories, are uniquely positioned to watch how inflation has impacted consumers, with their grocery sales expanding and discretionary sales on things like apparel and home goods suffering.
On the call, McMillon framed the push to lower costs on food in terms of boosting a more profitable category mix for Walmart. Bringing down prices in lower-margin food and consumable categories “would help us with mix and free up cash for customers to use for discretionary goods,” McMillon said.
He added, “It's a generalization, not everybody is in the same place, but we're looking for those [suppliers] that want to be aggressive.”
Despite retailer pushback, some brands have signaled that they intend to keep raising their prices in 2023. On an earnings call in March, McCormick CEO and Chairman Lawrence Kurzius noted that its price hikes have lagged its own cost inflation over the past two years. Kurzius said that McCormick plans to “fully recover” those costs through price increases over the course of 2023.