Business

Walmart says shoppers are on alert as grocery bills climb

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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 packs or skipping over discretionary items — but said they are paying attention to rising prices.

“We haven’t seen any marked changes at this point in how they’re shopping,” he 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 more across the country. The consumer price index rose by 7.5% in January compared with a year ago, 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 another factor, too: As the omicron wave of Covid recedes, consumers may 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 in the quarter came from higher prices. Same-store sales, a key retail metric, grew 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 website, rather than inflation.

Biggs said the retailer has kept customers and shareholders in mind as it tries to walks the line between keeping prices low and profits high. He said it is taking 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,” he said.

In store aisles, Walmart has big signs advertising temporary price reductions — called “rollbacks.” Walmart U.S. CEO John Furner said on an earnings call that the retailer has the same number of rollbacks now as it did at the end of the first quarter last year.

CEO Doug McMillon said on an earnings call that rollbacks take on another purpose during periods of inflation and uncertainty: They tap into customers’ emotions and signal Walmart is still providing value.

Many major consumer goods companies sold on Walmart shelves, such as PepsiCo, Coca-Cola and Procter & Gamble, have already hiked prices — and warned more increases may be on the way.

McMillon said the retailer has frequent talks with brands and leans on its long relationships to hold prices down.

“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 weathering similar periods in Mexico and parts of South America. Plus, he said, when consumers focus on price, they tend to shop more with Walmart.

“During periods of inflation like this, middle income families, lower middle income families, even wealthier families become more price sensitive,” he said. “And that’s to our advantage.”

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