Amazon can now deliver many things in one or two days, so Walmart has to have lower prices for the many customers who can wait. Similarly, Amazon has to undercut Walmart’s grocery prices if it’s going to stake out any significant portion of that $800 billion market. For shoppers at either of these two retail giants, this can mean lower prices, but it’s also forcing manufacturers and suppliers to rethink how they do business.
Consumer brands have been increasingly dedicated to figuring out ways to deal with this pricing war, one executive told Re/code, noting that “it’s dominating the conversation every week.”
Though Amazon made headlines this week for gathering some of the biggest packaged food brands together to pitch them on the idea of frustration-free packaging, as part of a push to attract more customers to online shopping instead of buying in physical stores, Walmart has also been meeting with its suppliers in an effort to ramp up the battle for shoppers.
Last week, Walmart brought together major household brands at its headquarters for a pricing powwow. According to a presentation Re/code viewed, Walmart wants to have the lowest price on 80% of its sales, which means brands that sell through the retailer would have to cut costs elsewhere.
Some vendors say doing this will mean they’ll lose money on every sale — but if they don’t cooperate, they could find their distribution limited in comparison to those who do play along. Walmart could also develop new in-house brands and sell those products to consumers instead of using outside suppliers.
“Once every three or four years, Walmart tells you to take the money you’re spending on [marketing] initiatives and invest it in lower prices,” Jason Goldberg, head of SapientRazorfish, a digital agency that works with large brands and retailers, told Re/code. “They sweep all the chips off the table and drill you down on price.”
Amazon may not yet be the grocery powerhouse that Walmart is, but it still has significant leverage to push suppliers to keep their prices low. The online retailer is not only willing to lose money on certain products just to beat the competition on price, notes Re/code, but isn’t afraid of dumping brands or products when vendors don’t play along.
Re/code gives the example of Pampers diapers disappearing from Amazon last week, prompting speculation in the industry that the e-commerce giant booted Pampers in an effort to negotiate better prices.