Costco (COST) has made a point of telling members (and would-be members) how the warehouse club works to save them money. The first is simply by flexing its muscle. Being huge and only carrying a very limited selection lets the retailer place huge orders which allows it to demand lower prices.
In addition, Costco has been vocal about its willingness to absorb certain price increases rather than pass them on to members.
"Fresh foods was down. As you know, for the last couple of years, it's been particularly strong, and it's come down a little bit. In addition, we are looking to hold prices on some of those price points despite inflated costs in some of the fresh food categories," CFO Richard Galanti said during the company's first-quarter earnings call.
That has given Costco an edge as it has made sure that it not only offers members great value compared to key low-price rivals including Walmart (WMT), but now Walmart has fired back by sharing some of its own efforts to hold prices down.
Walmart
Walmart Has Its Own Price Advantages
While Costco has some pricing edges based on the size of its orders, Walmart has some unique advantages of its own. The sheer size of its brick-and-mortar store and distribution center network gives it some massive supply chain advantages and it has the same leverage with suppliers that Costco enjoys.
Now, the chain has gone public about using those advantages to push back on price increases from its suppliers. It has been rejecting rising prices telling its suppliers that after two years of steady increases, it sees that packaging costs (among others) are coming down, so rising prices are no longer acceptable.
"(Walmart) said to us, 'From here, our consumer is challenged, we're going to be looking out for consumers, so you're going to have to have really good reasons if you're going to price up from here," Rod Little, CEO of Schick razor maker Edgewell Personal Care Co. (EPC) told Reuters.
The retailer has pushed back on pricing specifically because it feels pressure from Costco and discounters like Dollar General (DG).
"Because the consumer is now under more pressure, and Walmart is under pressure, that sets up a dynamic where there's probably not a lot of pricing going forward," said Little whose company's biggest customer is Walmart.
Walmart Has Been Vocal on Prices
Walmart CEO Doug McMillon was very vocal about pricing during the chain's third-quarter earnings call back in November. At the time he noted that the retailer was holding the line on pricing for key Thanksgiving staples.
"The Walmart U.S. team has set the retail prices for a typical Thanksgiving meal the same as last year. We're removing inflation on a basket of traditional Thanksgiving food items, including whole turkeys for under a dollar per pound," he said.
That's a smart move that should resonate with customers, but it does not address the larger issue of rising prices. McMillon commented on that as well.
"Living with high prices through this year has a cumulative impact on our customers, especially for those that are most budget conscious. And so, we're focused on bringing our costs and prices down as quickly as possible by item and category. Regardless of income levels, families are more price-conscious now, so it's as important as ever that we earn their trust with value," he shared.
Walmart CFO John David Rainey also made it clear that the company was leveraging its house brands to keep prices down as well.
"This quarter, our private brand penetration in food categories increased about 130 basis points, reflecting customers' increased focus on quality products at value prices. We observed incremental trade down in categories, including proteins, baking goods, baby, and dog food. We're working hard to keep prices low and help ease the burden to make customers' lives better," he shared.
