NEW YORK – Wal-Mart Stores Inc. will lower grocery prices by $1 billion this year, hoping customers will come in for the reduced costs and then fan out to other parts of the store.
The retailer, the largest grocery retailer by sales in the U.S., is taking the step to continue or increase the progress its U.S. stores began to see in the second half of last year, when U.S. comparable-store sales turned positive. While the $1 billion sounds like a large number, Wal-Mart had $145 billion in grocery sales last year in the U.S. Wal-Mart calls the approach "investing in price," which equates to reducing prices or not passing along the cost of inflation, so that the retailer's margins will be dinged. The hope is that lower prices will generate enough additional customer traffic and loyalty to make up for the short-term sacrifice in profit.
Bernard Sosnick, retail analyst at Gilford Securities, said the $1 billion drop in prices is significant because groceries carry thin margins, and many other food chains would be hard pressed to make this kind of cut.
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