It wasn’t long ago that one of Walmart’s main defenses against any attacks on its employment, environmental and other practices was that every single American benefited each year by thousands of dollars because of how the chain had managed to lower prices across the U.S. economy—even if that particular citizen never set foot inside a Walmart store.
Now, of course, the major disruptor of retail isn’t Walmart but its rival, Amazon, whose mastery of e-commerce (its latest salvo: Amazon Cash) continues to explode one category after another and morph in new ways that makes the company the dominant merchant of our time.
Put these two forces together these days—as Amazon tries to extend its dominance over e-commerce and is dabbling in bricks-and-mortar retailing with Amazon Go, and as Walmart tries to revitalize its ground game in its stores while also creating the No. 1 online rival to Amazon—and you’ve got a load of trouble for consumer packaged goods (CPG or FMCG) brands that want to maintain their margins.
According to the story, Walmart recently gathered brand executives to its Arkansas headquarters “for some tough talk.” The company was getting beaten too often on prices by Amazon and other competitors, and so Walmart was demanding wholesale-price cuts or other cost adjustments to shave at least 15 percent off its current prices. In some cases, vendors told Recode, they stood to lose money on each transaction if they met those demands.
Amazon also recently invited some of the world’s biggest brands to its Seattle headquarters to persuade them to start shipping products directly to online shoppers and bypassing chains like Walmart, Bloomberg reports.
At the same time as Walmart’s renewed focus on its “Everyday Low Price” messaging, Amazon is demonstrating increasing aggressiveness in its own pricing of CPG items that are core to Walmart’s success.
“The result in recent months has been a high-stakes race to the bottom between Walmart and Amazon that seems great for shoppers,” Recode commented, “but has consumer packaged goods brands feeling the pressure.”
These pressures have “ignited intense wargaming inside the largest CPG companies,” the story said, including P&G, Unilever, PepsiCo, Mondelez and Kimberly-Clark.
One of their challenges is dealing with an Amazon algorithm that works to match or beat prices from other websites or stores, applying the lowest price per unit or ounce for a given product no matter where it has picked up that price—such as a bulk-size pack at Costco.
“I’m very concerned,” one CPG executive said. “Do all CPG goods get commoditized to 40 percent below where they’re used to being? The long-term implication is you just don’t know where the bottom is at.”