Walmart revealed in 2017 that it will lower its grocery rates. Due to the low cost of supermarkets such as Aldi, the management took the decision to achieve a strategic edge in the industry. According to Bose, Wal-Mart cut the price to “close a sales difference with German-based” retailer Aldi (1). This suggests that price cuts were used to capture and sustain demand for the brand while still undercutting its rivals.
Recently, Aldi built and increased its market share to the point that it posed a threat to Wal-Mart. Walker reported that within the last 12 weeks, Aldi’s “sales volume increased by 10%” (1). This reveals that Aldi was expanding its sales and market share in the regions dominated occupied by Wal-Mart. In fact, it was a threat to the existing stores such as Wal-Mart since its sales increased due to the fact that they reduced the prices of their products. Therefore, this step forced Wal-Mart to reduce their prices too. According to Bose, Wal-mart tested the price reduction strategy in 11 Southeastern and Midwest and found that “Wal-Mart’s bid to lower prices is relatively taking hold” (1). That is, lowering the prices was a competitive step taken by the business to attract more shoppers. In fact, Wal-Mart controls approximately 22% of the grocery market in the US and it’s expected to expand further by 2% at the end of 2017.
Wal-Mart tries to expand their market share and sales by reducing the prices. In other words, the store anticipates that the demand for its products would respond positively to the reduction in price. This is because in the past, the price elasticity has been relatively elastic. The graph below illustrate the effects of price reduction on demand.
From the graph above, any slight change in the prices resulted in increase demand for their product. This reveals that the consumers of Wal-Mart are price-sensitive. Although it is a good parameter for the store, it can affect their sales. That is, the consumers might make their decision depending on the options they have in the market. For example, the price change by Aldi, Albertson Cos Inc, Kroger, and Publix Super Market might influence the consumers to switch to them. Therefore, it forces Wal-Mart to adopt the low-cost pricing strategy to survive the competition. According to Heller, low prices is what would make Wal-Mart “regain its dominance” in the market (1). That is, the low prices compared to competitors enables the store to retain and attract more customers to buy its products.
In the past, customers have been responding poorly to an increase in the price of products. That is, price-sensitive consumers have been changing their buying behavior depending on the price changes. For example, in 2014, Wal-Mart tried to raise its prices, and many consumers pursued other options in the market. As such, Wal-Mart required the suppliers to help them “beat rivals on head-to-head pricing” to maintain them (Bose 1). The lesson persuaded the management to reinforce the Wal-Mart’s strategy of “everyday low pricing.”
Although price influences the demand for products at Wal-mart, there are other factors at play. The factors that impact demand and supply of Wal-Mart products include seasonal consideration, technology, population, and taste and preference.
Seasonal factors influence the supply and demand for products in the market. For example, during the holidays, retailers offer discounts and lower prices to attract more customers. As such, there would be a high supply of products to the market. Consequently, if the demand for Wal-Mart grocery is higher during the holiday compared to the supply, the retailers might decide to adjust their prices up. This increase not only the revenue but also sales.
Technology is vital in the production, processing, and storage of products. The fact that Wal-Mart deals with perishable products, technology makes it easier to meet consumers. Banjo noted that Wal-Mart realized 1.9% increase in sales and “29% jump in domestic online sale” (1). This reveals that Wal-Mart’s idea of adopting e-commerce enabled it to gain more sales and market share. Technology also helps the store to monitor the consumer’s purchasing power; thus they can adjust prices appropriately. For example, due to e-commerce, the demand and supply for food were high in the US. As such, the company decided to cut the food prices which helped it “fight back against the dollar stores” which are into its market share (Banjo 1).
Population pattern affects the demand and supply of Wal-mart products. When the population increases, there is high demand for groceries. This is because many people want to satisfy their needs using the limited resources available in the market. Banjo asserts that Wal-Mart boosted sales by “29% due to increase in population in the US” (1). On the other hand, if the buyers in the market decrease, the demand also decreases. As such, Wal-Mart would not produce more to the market.
The taste and preference of consumers change fast. Therefore, stores have to provide products which the consumer require at a given time. When the customer’s taste changes to whole milk, the demand for it increases. In fact, Wal-Mart might raise the prices to ensure the production meets the quantity demanded. On the other hand, if the taste for a given product decreases, its demand also decrease.
In conclusion, price decrease for Wal-Mart products increases sales and market share. In fact, it enables the store to gain a competitive advantage since price decrease results to elastic price elasticity of demand for Wal-Mart groceries. However, there are factors influencing demand and supply such as seasonal consideration, technology, population, and taste and preference.
Works Cited
Bose Nandita. Exclusive: Wal-Mart Launches New Front in U.S. Price War, Targets Aldi in Grocery Aisle. Reuters, 27, February 2017. Accessed on 7 March 2017.
Banjo, Shelly. Walmart id Winning the Food Fight, for Now. Bloomberg, 21 February, 2017. Accessed on 7 March 2017.
Heller Laura. Walmart Slashes Prices on Groceries. Forbes, 27 February 2017. Accessed on 7 March 2017.
Walker Ian. Tesco Sales Rise Again; Aldi, Lidl Market Share. MarketWatch, 13 December, 2016. Accessed on 7 March 2017.
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