Walmart pushes back as major product suppliers ask for higher prices (updated)

Edgewell Personal Care

10/02/2023 18:02

(Updates with Newell Brands Inc earnings; adds detail on 2018
dispute between Walmart and Campbell Soup)
    By Siddharth Cavale and Jessica DiNapoli
       NEW YORK, Feb 10 (Reuters) - Walmart Inc  WMT.N  is
warning major packaged goods makers that it can no longer
stomach their price hikes, pitching its own private-label
products to shoppers as less-expensive alternatives to
suppliers' name-brand goods.
    For the world's biggest retailer, which reports earnings
Feb. 21, any increase in prices --- even by just a few cents --
can have negative effects, prompting some shoppers to look for
bargains at dollar stores or warehouse chains such Costco
 COST.O . 
        Walmart, which touts its "Everyday Low Price" policy,
raised prices last year on milk, frozen meals and Tide
detergent, to name a few, as its suppliers battled soaring costs
of everything from chemicals to wheat and fuel.
    But now with the cost of cardboard cases declining by
40-50%, the cost of transportation falling by 25-30% and the
cost of raw materials declining significantly, "retailers like
Walmart will say 'hey you already had three rounds of price
hikes last year, why are you giving us another?'" said Burt
Flickinger, managing director at retail consulting firm
Strategic Resource Group. 
    Rod Little, CEO of Schick razor maker Edgewell Personal Care
Co  EPC.N , told Reuters that it "will be very difficult" to
pass new price increases through to retailers going forward.
Walmart is Edgewell's biggest customer. 
        "(Walmart) said to us, 'From here, our consumer is
challenged, we're going to be looking out for consumers, so
you're going to have to have really good reasons if you're going
to price up from here," Little said in an interview. 
  
        "Because the consumer is now under more pressure, and
Walmart is under pressure, that sets up a dynamic where there's
probably not a lot of pricing going forward." 
  
    Walmart did not respond to a request for comment.    
        At Unilever, the purveyor of Dove soap, Knorr bullion
cubes and Hellmann's mayonnaise, finance chief Graeme Pitkethly
said  Thursday that it was "not yet past peak pricing," even
after implementing a record 13.3% average price hike in the
fourth quarter of 2022. Unilever estimated net material
inflation of $1.5 billion euros ($1.6 billion) in the first half
of this year. 
    Procter & Gamble  PG.N , maker of Tide detergent and Pampers
diapers, said on January 19 it would continue to raise prices
despite seeing a drop in volumes. It sells more than $10 billion
worth of products through Walmart.
    Rubbermaid-maker Newell Brands said Friday that it would
increase some prices, though it expects commodity and
transportation costs to fall. Fifteen percent of Newell's sales
go to Walmart, according to its regulatory filings.
        To be sure, Walmart has the upper hand. Its own store
brands, Great Value and Equate, compete directly with Unilever's
and P&G's product lines in the United States. Forty-three
percent of all purchases of store brand packaged goods made
online in the U.S. were on Walmart.com, according to the
research firm Numerator, which measured transactions for the
last quarter of 2022.
  
        The clout Walmart holds over suppliers also means that
Walmart would likely get the lowest percentage of any price
hikes manufacturers implement, according to investors who track
the company. "Walmart is just a conduit (for P&G and Unilever)
that uses its enormous size to provide the best deals it can for
customers," said David Klink, senior equity analyst at
Huntington Private Bank.
  
        "We would think Walmart might emerge with less of a
consumer goodwill hit than these other companies in a
rising-price environment," said Kilnk, whose firm holds more
than $45 million in Walmart shares.
  
    Walmart previously has stopped ordering products over
disputes on pricing.
    In 2018, Walmart pulled back on ordering Campbell Soup Co's
 CPB.N  products during the key winter season over a dispute
over prices and shelf space promotion. 
    Across the pond, tussles between Britain's largest
supermarket chain Tesco  TSCO.L  and Kraft Heinz  KHC.O  led to
Heinz baked beans being removed from shelves. At the time, Tesco
labeled Heinz's price hikes as "unjustifiable."
    Huggies diaper maker Kimberly-Clark  KMB.N  said it was
embedding additional pricing this year, while toothpaste maker
Colgate  CL.N  said it planned further price hikes in the first
half of 2023.
    "We're trying to figure out with our (dry grocery and
consumables) suppliers, what could we do that's different that
would help mitigate some of those costs?" Walmart CEO Doug
McMillon said at an investor conference in December. 
       "Unfortunately, some of those suppliers are still
pointing us towards more inflation next year on top of the
mid-double digits this year. And we don't like that for any
reason," he said.
  
       Shoppers at chains such as Walmart and Kroger  KR.N  were
waiting longer to buy new products like bleach and kitty litter,
and in some cases trading down to buy smaller sizes, or larger
wholesale quantities because they want more value per unit,
Clorox's  CLX.N  CFO Kevin Jacobsen said February 2.  L4N34I3VL 
    After raising prices four times in 2022, he said, Clorox
doesn't "have any additional plans" to hike prices this year.
 (Reporting by Siddharth Cavale and Jessica DiNapoli in New
York; Editing by Chizu Nomiyama)
 ((siddharth.cavale@thomsonreuters.com; Cell: +1 646-288-4330;))