Private brands deliver big savings
NEW YORK — Consumers heading to the grocery store this summer can garner more than 35% in savings if they buy store brands, according to a pricing study conducted by the Private Label Manufacturers Association.
PLMA said its study tracked tracked pricing for 30 grocery items — both food (i.e., hot dogs, barbecue sauce, etc.) and nonfood items (i.e., charcoal, paper plates, foil, etc.) — over a six-week period at a conventional supermarket. The study results indicated that consumers who opt to purchase the private-label brand for products on the list, versus than the national brand, on average could save $44.04 off their total market basket — a savings of 35.7%. PLMA drew this conclusion after making six separate trips with the total bill costing $123.23 for national brand purchases and $79.19 for private-label purchases.
According to PLMA, private-label items today account for nearly 1-in-4 grocery products sold.
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Report reveals increase in online retail sales
PURCHASE, N.Y. — MasterCard Advisors SpendingPulse revealed that online retail sales rose 14% over the year-ago period, marking the 24th straight month of year-over-year growth, as well as the ninth consecutive month of double-digit growth, with improvement in every subcategory except for electronics.
The macroeconomic report, which tracks national retail and services sales, noted that 14% year-over-year growth for the overall online retail category, however, was the smallest increase for e-commerce since February 2011, and is an expected seasonal slowing. Overall, various sectors in retail were sluggish for the month.
“Sector weaknesses are the result of a variety of drivers,” MasterCard Advisors SpendingPulse VP research and analysis Michael McNamara said.
McNamara added that consumers paid about $1 more per gallon of gasoline in July 2011 that the year-ago period, which potentially could have put a damper on sales. “At about 10.9 billion gallons pumped this July, that price increase is redirecting almost $11 billion per month towards gasoline spending and away from other areas of consumer spending, or savings,” he said.
Always darkest before the dawn
There was a lot of negativity in the air this week regarding Walmart. Jefferies & Co. analyst Dan Binder downgraded the company on Tuesday and proceeded to appear on CNBC where he expressed concerns about company specific issues at Walmart regarding turnaround initiatives not gaining traction in the time frame he had hoped for.
On Wednesday, Bloomberg piled on with a story about declining traffic trends that was based on an internal memo from an un-named author. The same day an email pitch from WSL/Strategic Retail hit media outlet inboxes with the following provocative subject line:“Walmart’s reign as price king is over,” according to ‘How America Shops’ report." The consulting firm’s take in the first line of the executive summary was: “The reality is that Walmart will not be what it was any time soon, any maybe never, for lots of reasons. Some long-standing. Some recent.”
These actions coupled with dour economic news, which roiled financial markets and sent the price of gold soaring to new highs, created a perfect storm of negative sentiment. Shares of Walmart suffered along with the broader market and by the end of trading on Thursday were a dime above the 52-week low of $50.
Clearly not a good week for Walmart, but things may not be as bad as they seem or have been made out to be. For starters, Jefferies analyst Binder could just have easily made the same comments about the company’s turnaround efforts last year, the year before or the year before that, so the timing of the call is interesting and of questionable value to the firm’s clients. Shouldn’t long-term oriented investors consider accumulating more shares of Walmart given the compression of the company’s earnings multiple and an even more attractive entry point following this week’s pullback.
As for Bloomberg, the media outlet and current beat reporter covering Walmart have demonstrated a consistent pattern of distorting and misrepresenting information about the company that is as obvious as Fox News’ pro-Republican slant. The decline in customer traffic at Walmart is well-documented and routinely mentioned as a key challenge during investor presentations so the issue isn’t new news. The conclusion that the add-back of 8,500 items isn’t working because traffic hasn’t increased is flawed because it overlooks the reality that regaining lost customers is a lengthy process and Walmart can’t sell more to existing shoppers if they don’t have any money.
The situation with the WSL/Strategic Retail report is a bit different. It is a common practice among consulting firms to issue reports on key retail industry topics to position the firm as a thought leader, showcase research capabilities and generate new business. Releasing a report on Walmart supported by a consumer survey is a pretty effective way of generating considerable exposure for one’s brand even if the data presented doesn’t tell anyone in the retail industry anything they didn’t already know.
This isn’t to suggest there is some truth to what WSL, Bloomberg and Jefferies all said this week, but they are missing the point. Walmart understands the road back is going to be long and slow because restoring an every day low price value proposition is not something that happens over a few quarters, especially when the company’s core shoppers are getting kicked in the teeth by gas prices and a lack of jobs.
Look for the negativity to get worse before it gets better. Second-quarter results are due out later this month and with expectations low that Walmart will see any type of meaningful top line improvement at its U.S. stores there will be a lot of second-guessing out there regarding the company’s strategic direction. Some of it, while well-deserved, fails to understand that EDLP is a marathon and the not the type of strategy designed to yields quick results.