Wal-Mart Goes Beyond EDLP With New Pricing

MARK HAMSTRA

BENTONVILLE, Ark. — In a shift away from its traditional EDLP model, Wal-Mart Stores here is implementing some aggressive promotional pricing on certain items in at least a handful of markets, according to industry executives and observers.

In a conference call with analysts last week, Rick Anicetti, chief executive officer of Salisbury, N.C.-based Food Lion, said his company has observed some unusual promotional advertising from Wal-Mart in some markets, though not in all.

“We've seen a portfolio approach where Wal-Mart is not pricing in a uniform manner across all of its geographies,” said Anicetti. “They have been a little bit aggressive at the end of the second quarter and into the third, in terms of some new advertising that they have been doing that is a little bit uncustomary for them on a historical basis.”

Wal-Mart could not be reached for comment. In reporting U.S. comp-store sales gains of 1.3% (excluding Sam's Club) for the month of July last week, however, Wal-Mart said it had “stepped up its promotional activity” during July with “rollback” and “save even more” programs on more than 16,000 products.

“The deep cuts on top brands and food started in time for the July Fourth holiday, and continued throughout the four-week period, and customers have responded well,” the company said in a prepared release.

In a conference call earlier this month, Craig Sturken, chairman and CEO of Grand Rapids, Mich.-based Spartan Stores, said his company also has observed an unusual level of promotional pricing activity at Wal-Mart.

“Wal-Mart has engaged in a feature program that they have never had before,” he said in a conference call discussing Spartan's first-quarter results. He cited specific feature-pricing programs that Wal-Mart offered on Procter & Gamble products in June and on soft drinks around the Fourth of July.

“The amount of feature activity that Procter & Gamble has gotten with Wal-Mart is overwhelming,” he said. “That is out of character for Wal-Mart. They are not a feature [advertiser] — they like to match everybody's pricing, and they have a wonderful EDLP program. But having a circular on the street with glossy photographs with feature pricing that is very, very strong is out of character for Wal-Mart, so that is a really big change for them. We have also seen them maybe moderate some of their everyday low pricing a little bit — we watch it very carefully, and we think there's some activity in that area.”

Jon Hauptman, a partner in consulting firm Willard Bishop, Barrington, Ill., said he, too, has recently observed some promotional pricing activity that is out of character for Wal-Mart.

“We've been looking at Wal-Mart prices for years, and this is the first time that we've seen it,” he said.

He declined to provide details about the specific promotions, but he noted that they involved shelf-label price tags and in-store displays in one newly opened store in the Midwest. It was not replicated at other Wal-Mart Supercenters in the area, he said.

“Wal-Mart appears to be maintaining their low shelf prices, and promoting, on top of that, to breadths and depths that are pretty competitive with traditional high-low supermarket operators.

“It shows there is consumer appeal and excitement in promotional offerings,” he added. “And Wal-Mart appears to be selectively applying the promotional strategy to try to neutralize supermarkets' promotional activity.”

He said Wal-Mart could be implementing the promotional pricing “to establish a presence and appeal in new markets.”

“I don't know how financially sustainable that is for Wal-Mart, but on a short-term basis, it certainly is a serious competitive threat to area supermarkets.”

Although Sturken said he believes some of the promotions Wal-Mart has conducted with P&G have been nationwide, observers said the discount giant appears to be implementing the promotions on a more selective basis.

Ron Hodge, CEO of Food Lion sister chain Hannaford Bros., based in Scarborough, Maine, said in an earnings call with analysts last week that he believes Wal-Mart has actually raised its prices recently in the Northeast.