Business

Walmart says shoppers on guard as groceries bills rise

A shopper wearing a protective mask shop at a Walmart store on May 18, 2021 in Hallandale Beach, Florida.

Joe Radle | Getty Images

Walmart chief financial officer Brett Biggs said shoppers are not switching to cheaper brands, buying smaller packages or ditching non-essential items, but are paying attention to rising prices.

“At this point, we’re not seeing any noticeable change in how they shop,” he said Thursday in an interview with CNBC. But, he added, “we know, we’ve seen and heard from our own research, that people are definitely focused on inflation and they see it in their daily lives.”

Inflation drives up the price of food, fuel, vehicles and more across the country. The CPI rose 7.5% in January from a year ago, the fastest rise in four decades, according to the Labor Department. Grocery spending is up 7% year-over-year, and food is Walmart’s largest sales category.

These rising costs have become a focus for investors who are watching to see if and when Americans’ spending patterns will change. Household budgets could also be hit by another factor: As the micromicro wave of Covid recedes, consumers may be spending more on commuting or dining out.

Walmart’s fiscal fourth quarter earnings beat Wall Street’s expectations, and the company reaffirmed its guidance for the year. Part of the retailer’s sales in the quarter came from higher prices. Single store sales, a key retail indicator, rose 5.6% in the US. More than half of Walmart’s sales growth came from increased store and website visits, not inflation.

Biggs said the retailer has customers and shareholders in mind as it tries to strike a balance between keeping prices low and making high profits. He said he was taking a balanced approach as he raised the prices of some products and not others.

“Even if you can get costs carried in one piece [shopping] basket, you can do some things in another part of the basket to make it work as a whole,” he said.

There are large ads in the aisles of Walmart stores advertising temporary price cuts called “kickbacks”. Walmart US CEO John Ferner said the retailer is now experiencing the same number of kickbacks as it did at the end of the first quarter last year.

CEO Doug McMillon said in an earnings call that kickbacks have a different purpose in times of inflation and uncertainty: they engage customers’ emotions and signal that Walmart is still delivering value.

Many of the big consumer goods companies that sell on Walmart shelves, such as PepsiCo, Coca-Cola and Procter & Gamble, have already raised prices — and have warned that further increases could come.

McMillon said the retailer often negotiates with brands and leans on its long-term relationships to keep prices low.

“The volume of communication between us and suppliers is always high,” he said. “He’s especially tall now.”

He said the retailer knows how to deal with spikes in inflation due to similar periods in Mexico and parts of South America. Plus, when consumers focus on price, they tend to shop more at Walmart, he says.

“During these periods of inflation, middle-income families, lower-middle income families, and even wealthier families become more price sensitive,” he said. “And that’s in our interest.”


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