(UPDATED COVERAGE, April 21) Wal-Mart Stores Inc., which last month touted plans to cut prices for most items, has yet to âmateriallyâ change its food prices, according to a BB&T Capital Markets analyst.
So far, âit appears that Wal-Martâs grocery pricing is benign,â Andrew Wolf said in an April 16 report, citing a BB&T survey of stores in Virginia earlier this month.
The survey results indicated Wal-Mart had not materially altered its food pricing, Wolf said.
Wal-Martâs food sales have drawn increased attention since March, when the company said it would scale up rollbacks, or permanent price reductions. In mid-April, Wal-Mart said it was cutting prices on about 10,000 items, mostly food, the Wall Street Journal reported.
The BB&T survey results raise questions over just how much Wal-Mart will actually lower prices for fruits, vegetables, meat and other food, said Neil Stern, a principal with McMillan Doolittle, a Chicago-based retail industry consultant.
âIt will be interesting to actually see the depths of their cuts,â Stern said. âMost importantly, how will the consumers perceive the change?â
Based on most price surveys, Wal-Mart is already considerably cheaper than other grocers, Stern said.
âSo, will the consumer notice something dramatic?â he said. âWal-Mart is looking to gain share, which means more customers through the door. The caution would be that theyâre not done yet. Itâs too early to tell exactly what theyâre going to do, yet.â
Wal-Mart spokeswoman Linda Blakley onApril 20 said more price cuts are coming.
âThere are, and will continue to be rollbacks on food and consumables,â Blakely said.
Bentonville, Ark.-based Wal-Mart, the worldâs biggest retailer, still has lower-priced food than many traditional supermarket chains, though Kroger Co. narrowed that gap this month, Wolf said.
As of April 14, Wal-Martâs food prices were about 7.8% lower than Krogerâs, down from 10.4% at the end of March, according to Wolfâs survey, which was based on a basket of 56 food items.
Compared with Food Lion LLC stores, Wal-Mart food prices were about 15% lower, little changed from the end of March.
While Wal-Mart gained share in the grocery business in recent years, profit prospects are brightening for supermarkets such as Kroger and Safeway Inc. as the economy recovers and consumers spend more on food.
The retail food industry reached an âinflection pointâ near the end of 2009, signaling the end of a profit-draining deflationary period, Wolf said.
During the fourth quarter of 2009, U.S. inflation-adjusted food store sales rose 1.8% from the same period in 2008, the first year-over-year increase since the second quarter of 2008, Wolf said.
âWith wholesale food-price inflation now firmly reestablished, we anticipate that retail food prices should begin to inflateâ by the second quarter of 2010, Wolf said.
Based on government forecasts, food-at-home prices will rise 2.5-3.5% in 2010, which âimplies a strong rebound in retail food inflation in the back half of 2010,â Wolf said.
Wolf said heâs constructive on the outlook for food merchandisers. He has âbuyâ ratings on Kroger and Safeway shares.
Still, Wal-Mart, which had 3,708 U.S. stores at the end of January, is expected to gain additional ground in groceries this year, other analysts have said recently
According to estimates from Citigroup Inc. analyst Deborah Weinswig, Wal-Martâs share of the $816 billion U.S. retail food business will rise to 21.6% in 2010 from 20.5% in 2009, excluding Samâs Club stores. Kroger ranked second at 10.2%.
In Wal-Martâs fiscal 2010, groceries accounted for 51% of the $258.2 billion total U.S. sales, the first time the category garnered more than half the retailerâs revenue.
Groceries accounted for 49% of U.S. sales in 2009, Wal-Mart said in a government filing.
Wal-Martâs price rollbacks have mostly been applied to flat-screen televisions, digital cameras and other nonfood items, according to the companyâs Web site.