How Inflation is Changing the Walmart Shopper

The word “inflation” came up more than 60 times during Walmart’s early-morning call Tuesday with industry analysts. And it’s little wonder why.

Walmart blamed inflation last month for its decision to downgrade its earnings forecast for the fiscal year, saying softening sales of general merchandise like apparel and electronics left it with excess inventory and the need to offer significant markdowns.

But inflation, particularly record food-at-home prices, is also responsible for the big lift Walmart has seen in its value-focused grocery business recently. Food at home rose another 1.3% in July, climbing a historic 13.1% over the past year, according to the latest Bureau of Labor Statistics data.

Walmart’s same-store grocery sales climbed in the mid-teens during the second quarter, executives said, far outpacing the retailer’s overall same-store sales growth during the period.

“The strong comps we see in food and consumables are leading to market share gains,” Walmart CEO Doug McMillon, whose company is already the country’s largest grocery retailer, told analysts. “Pickup and delivery are strong. Growth is improving on Walmart.com … and more people are choosing to be a Walmart member.”

What’s particularly interesting, though, is how inflation is shaping consumer  behavior at Walmart.

Higher food prices are forcing some shoppers to trade down on their food purchases. Instead of buying more expensive deli meat, customers are increasingly putting cheaper hot dogs and canned tuna into their carts, CFO John David Rainey.

Customers are also seeking out less-expensive versions of favorite items.

Walmart, already a leader in private-label products, said the growth rate of its private brands has doubled just since the last quarter.

“For those that are under the most pressure, that are the most price sensitive, private brands are stronger, pack sizes are different,” McMillon said.

Walmart, long known as a low-cost option for lower-income consumers, is now seeing interest from those in higher income brackets, he said.

“We have seen mid-to higher-income customers come to Walmart looking for value,” he said. “As you would expect, food and consumables, in particular, are places where they’re looking to save some money. That’s not a total surprise. I think the strength of it is encouraging.”

Walmart’s membership-based Sam’s Club banner is also seeing growth among inflation-weary bargain-hunters, the company said.

During the second quarter, Sam’s Club marked its 10th consecutive quarter of double-digit same-store sales growth. That’s an increase of more than 20% on a two-year, stacked basis. What’s more, membership income grew nearly 9%, with a record quarter in overall membership counts. Sam’s Club added more new members in the second quarter than in any others in recent years, the company said.

High fuel costs and inflation will likely continue to cause some headaches for the retailer, especially as it seeks to unload slow-moving merchandise. In grocery, though, higher prices elsewhere appear to be leading shoppers through Walmart’s doors.

And Walmart is looking to market to that changing group of shoppers, at a variety of price points.

“The team is doing a very nice job balancing out how to improve quality and sell higher price points and remaining focused on opening price points,” John Furner, CEO and president of Walmart U.S., told industry analysts. “So, having Thanksgiving meals in a position where you can buy an entire meal for under $50 for a family of four is exciting. So, there’s a value play and there’s a quality play. And wherever the customer goes and how things shift, we’ll be ready to serve them and we’re building the capabilities to be able to do that at will.”