Walmart is about to get a lot cheaper in one key area
The retailer is slashing prices in its grocery department with a particular focus on fresh produce, consumables, and over-the-counter drugs, the company told Business Insider.
Consumables include items such as laundry detergent and windshield-wiper fluid.
The price cuts are part of a multi-year, multi-billion-dollar investment that Walmart launched in the first quarter of the year.
The rollbacks will put pressure on Walmart's profit margins, but the retailer is betting that resulting traffic gains will offset this, according to UBS analyst Michael Lasser.
The price cuts could also help Walmart fend off growing competition from German discount grocers Lidl and Aldi, Lasser wrote in a research note.
"Should WMT fully succeed in creating a higher-quality, lower-price perishable offering, it could serve as a point of differentiation and help slow (but likely not stop) share loss to Aldi and Lidl in the coming years," Lasser wrote.
In a price check last year, we found Aldi's prices were roughly 30% lower than Walmart's. Aldi and Lidl are both planning rapid expansions in the US.
This should result in even more lower-priced alternatives for consumers, since private-label products are typically cheaper than major brand-name items.
To expand its private-label goods, the company has opened a new culinary and innovation center at its Bentonville, Arkansas headquarters that's devoted to developing and testing new items.
At the new lab, the company asks test participants to provide feedback on new product shortfalls, such as whether an item is too sweet or not salty enough.
"Taking this feedback into account, Walmart is able to give each product a score. Once it meets a certain score threshold, it can release products into stores with a much higher likelihood of success," Lasser explains.
This process will improve the success rate of Walmart's new product rollouts, according to Lasser.