Walmart says shoppers are on alert as grocery bills climb
A shopper wearing a protective mask shops in a Walmart store on May 18, 2021 in Hallandale Beach, Florida.
Joe Raedle | Getty Images
Walmart Chief Financial Officer Brett Biggs said shoppers aren’t trading down to cheaper brands, buying smaller packages or skipping over discretionary items — but they are paying attention to rising prices.
“We haven’t seen any marked changes at this point in how they’re shopping,” Biggs said in a Thursday interview with CNBC. But, he added, “we do know, we’ve seen and we heard through our own studies that people are certainly focused on inflation and they’re seeing that in their daily lives.”
Inflation is driving up costs of food, fuel, vehicles and other everyday products across the country. The consumer price index rose by 7.5% in January compared with the year-earlier period, the fastest jump in four decades, according to the Labor Department. Food costs are up 7% over the past year — and grocery is Walmart’s largest sales category.
Those climbing expenses have become a focal point for investors, who are watching to see if and when Americans’ spending patterns change. Household budgets may get squeezed by a second factor, too: As the Covid omicron wave recedes, consumers may start to spend more on commuting or dining out.
Walmart’s fiscal fourth-quarter earnings topped Wall Street’s expectations and the company reiterated its forecast for the year. A portion of the retailer’s sales came from higher prices, but same-store sales, a key metric, expanded by 5.6% in the U.S. More than half of Walmart’s sales growth came from an increase in trips to the store and visits to its website, rather than inflation.
Biggs said the average American consumer “is still in good shape” due to a confluence of factors: low unemployment, rising wages and an increase in household savings during the pandemic. That may help explain why they are not shopping differently.
He said the retailer has both customers and shareholders in mind as it tries to walks the line between keeping prices low and profits high. He said Walmart tries to take a balanced approach as it raises prices on some grocery items and not others.
“Even though you may get costs being passed along in one part of the [shopping] basket, you may be able to do some things in the other part of the basket to make it work overall,” Biggs said.
In store aisles, Walmart uses big signs to advertise temporary price reductions — called rollbacks. Walmart U.S. CEO John Furner said on the earnings call Thursday that the retailer has the same number of rollbacks now as it did at the end of the first quarter in 2021.
CEO Doug McMillon added during the call that rollbacks tap into customers’ emotions and signal Walmart is still providing value amid inflation and uncertainty.
McMillon said the retailer has frequent talks with brands and leans on its long relationships with them to hold down prices.
“The amount of communication between us and suppliers is always high,” he said. “It’s particularly high right now.”
He said the retailer knows how to navigate spikes in inflation because of its experience weathering similar periods in Mexico and parts of South America. Plus, he said, when consumers focus on price, they tend to shop more at Walmart.
“During periods of inflation like this, middle-income families, lower middle-income families, even wealthier families become more price sensitive,” McMillon said. “And that’s to our advantage.”