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Wal-Mart Looks To Keep
Deep Discounters At Bay

Jim Prevor’s Perishable Pundit, September 20, 2007

Think Wal-Mart is worried about Safeway’s Lifestyle stores? We bet they think more about Aldi, Supervalu’s Save-a-Lot and other deep discounters.

We get some confirmation on that theory by the fact that ASDA, Wal-Mart’s subsidiary in the United Kingdom, is striving to hold the line on prices:

Asda is planning drastic action to cope with the rocketing costs of food, which some believe will see prices rise as much as 30% by Christmas.

As dairy, bread, pasta and meat prices surge on the global markets, Tesco, Sainsbury’s and other supermarkets have been forced to put up prices in their stores.

Asda, however, is planning a high-risk strategy to take a massive hit to its profit margins by absorbing most of the increase known in the trade as ‘agriflation’.

Sources at the chain, owned by US giant Wal-Mart, admit the company is seriously concerned that its cash-strapped shoppers may feel forced to defect to cheaper rivals Lidl, Aldi and Netto if it passes on too much of the extra cost burden.

Although taking the margin hit is perceived as a high risk strategy, it could also be a big winner. ASDA in the U.K. and Wal-Mart in the U.S. need the traffic to sell non-food items. If we are entering a period of rising food prices, Wal-Mart and ASDA could benefit big time if margin-compression strategies retain existing customers — rather than have them flee to cheaper deep discounters — while Wal-Mart and ASDA pick up the lower end demographic of consumers who flee Tesco and Target due to budget pressure.

This is certainly a strategy more likely to succeed than running ads in Vogue, which was an earlier notion of strategy.

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