Walmart is seeing more evidence that grocery shoppers are opting for cheaper food products and brands as they deal with “broad inflationary pressures,” CFO John David Rainey said on the Bentonville, Arkansas-based company’s Tuesday earnings call, his first since leaving digital payments company PayPal Holdings to assume the retail giant’s finance helm in June.
“As the year has progressed we’ve seen more pronounced consumer shifts and trade down activity. As an example, instead of deli meats at higher price points, customers are increasing purchases of hot dogs as well as canned tuna or chicken,” he said, adding that more shoppers are also choosing the company’s privately branded products.
The company is adjusting certain prices to reflect inflation and higher supply chain costs, while also managing them in a way that “preserves its price gaps and allows us to earn market share profitably,” Rainey said.
Inflation eased more than expected last month with the consumer price index (CPI) rising 8.5% in July compared with the same month last year after increasing 9.1% on an annual basis in June. But, food prices surged 10.9% compared with July 2021 — the biggest gain since 1979.
One of the biggest players in the grocery sector, Walmart is walking a fine line with its pricing strategy as it seeks to retain its appeal to budget-conscious shoppers while also offsetting the soaring costs it faces from its suppliers.
Walmart is betting that its value-oriented business model will be resilient under the current economic pressures and there was evidence of its increased appeal in the second quarter. Walmart CEO Doug McMillon on the call said the company was seeing more middle and higher income shoppers and the company said it continued to make “strong” market share gains in grocery store categories.
The company executives described a varied approach to pricing on the call as Walmart seeks to hold down or roll back what it charges for certain items — particularly in its private brand food and consumable categories — while also selling higher priced items.
“The team is doing a very nice job balancing out how to improve quality and sell higher price points and remaining focused on opening price points,” said John Furner, CEO of Walmart U.S., according to an earnings call transcript. He said having “Thanksgiving meals in a position where you can buy an entire meal for under $50 for a family of four is exciting. So there is a value play, and there is a quality play.”
Inflation related to food prices rose sequentially in the second quarter months through July and he effectively sees no end in sight to higher food costs even as the lower cost of diesel fuel used to transport food could be a tailwind, Furner said. The hope is “that some of these larger macroeconomic conditions would lead to lower prices in food, but we are not able to say that we see that happening just yet,” Furner said.