As three of the country’s leading retail giants carrying everything from furniture to clothes and groceries, Costco, Target, and Walmart all have lowered their prices in recent months. As these companies look to keep prices low -- and customers in stores -- it’s evident that the price war in the grocery world has really taken off.
It was recently reported that Costco is using tax cuts to invest in lower prices for food, clothing, and home essentials, as well as higher wages for workers.
“Price is at the top of our list,” said Costco CFO Richard Galanti. “When prices are going down...we want to be the first ones going down.”
According to a recent Raymond James survey, from February through April, Walmart’s prices dropped nearly four percent. The decrease was led by cheaper Cheerios, Old Spice body wash, and Heinz ketchup. Moreover, Walmart’s prices on nationally-branded foods was found to be lower than Dollar General and Family Dollar.
“Price still matters,” said CEO Doug McMillon. “There are a lot of Americans out there counting every penny and dime.”
Walmart is currently the leader in the low price market, as they offer customers a price match guarantee on items they find in other stores for lower prices. It’s this competitive pricing that forces Walmart’s competitors to keep dropping prices further.
Target has been slowly decreasing prices since 2017. Chief Executive Brian Cornell has been working to guide the company through a $7 billion investment phase that involves cutting prices to increase sales. As of May, the company reported that the strategy was working.
“We believe that consumer perception of value at Target has not reflected how low our out-the-door prices are,” Cornell said.
The evolving grocery business
The driving forces behind falling prices is reported to be the immense pressure and competition these retailers are feeling from dollar stores, each other, and online retailers like Amazon. As grocery shopping starts to become a more technological experience for consumers, it’s hard for these stores to raise prices.
“Prices are more transparent than ever,” said Bill Duffy, an associate director for research at Gartner L2. “Shoppers can compare costs on Amazon, while Google product searches feature prices prominently.”
Another factor at play is Amazon’s recent purchase of Whole Foods. The deal was made official last June when Amazon acquired the grocery store chain for $13.7 billion, and many believe that under Amazon’s leadership, shopping for groceries is about to get a lot more advanced.
“This is an earthquake rattling through the the grocery sector as well as the retail world,” said Mark Hamrick, senior economic analyst at Bankrate.com. “We can only imagine the technological innovation that Amazon will bring to the purchasing experience for the consumer. Now, we can see in hindsight that its recent dithering around the brick-and-mortar experience, as an experiment, was only a rumbling of the seismic event in the offing.”
Since taking over, Amazon has lowered Whole Foods’ prices while also offering all Prime members 10 percent off all Whole Foods’ purchases in an effort to change the retailers’ reputation of being costly to consumers.
In addition to Amazon, German retailers Aldi and Lidl have positioned themselves at the top of the grocery store food chain thanks to heavy discounting and easy-to-navigate stores. The stores have changed the shopping game in Europe, and their business model of slashing prices and offering “while they last” promotions is helping to expand their growth even further in the U.S.
“We see hard discounters as more than just a new form of competition,” said Bill Bishop, chief architect of the consultancy Brick Meets Chick. “In fact, we think they’re going to be a major disruptor and source of change influence on the grocery industry.”
Meal kits changing the game
What was once reserved for doorstep delivery has now made its way into grocery stores across the nation. While HelloFresh is the most recent meal delivery kit to hit shelves, Blue Apron and Plated can also be found in retailers across the country.
As online grocery shopping becomes more commonplace, HelloFresh President Tobias Hartmann thinks the move to grocery stores will benefit both grocers and consumers alike.
“Our retail line reduces the pressure on grocers to create these meals themselves and easily integrates into growing areas of their business such as online grocery and delivery,” Hartmann said in a statement.
For more information on top grocery stores, visit ConsumerAffairs' Grocery Store guide here.