Walmart, Sainsbury's Both Demand Big Savings from Vendors
For slightly different reasons, giant grocery retailers on both sides of the Atlantic are looking for savings from their supply bases.
First, in late March, Reuters reported that Walmart held a summit near its headquarters in Arkansas with many of its vendors, including Johnson & Johnson, Unilever and Kraft Heinz, to demand they reduce the costs they charge the retailer by as much as 15%.
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| Part of that will involve working with its suppliers to help them become more efficient - and naturally Sainsbury's will expect lower prices from those vendors as a result. |
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Vendors which attended the summit told Reuters that during its presentation, Walmart said it expected suppliers to help the company beat rivals on head-to-head pricing 80% of the time.
To meet the demands, vendors said they would have to cut their wholesale prices or make other cost adjustments to shave the required 15% off the net price.
The strategy comes after Walmart commissioned a study to find the right price point against Germany-based discount grocery chain Aldi and domestic rival Kroger, according to Fortune.
Despite its low cost image, Walmart prices have been as much as 20% higher than Aldi's on many grocery staples, analysis by Wolfe Research found - but more recent spot check by Reuters, after Walmart started dropping prices, found Walmart consistently offered lower prices.
"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," said Jason Goldberg, the head of commerce practice at marketing firm SapientRazorFish. "They sweep all the chips off the table and drill you down on price."
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Vendors also said Walmart has told them it intends to maintain margins on average and lose money on some goods as part of its pricing plan. Walmart told vendors it will absorb some of the losses initially so suppliers can adjust to the new pricing demand.
 Meanwhile, in the UK grocery giant Sainsbury's is embarking what in the end is likely a similar strategy, but in its case the initiative is being driven by falling profits. Q1 profits at Sainsbury's fell 8.2%, which the company largely attributed to rising costs.
"After more than two years of deflation, food and fuel prices started to rise towards the end of our financial year, driven by the devaluation of the pound sterling and commodity price increases," the retailer said.
As a result, company CEO Mike Coupe said Sainsbury would work with suppliers to "mitigate costs within our supply chain," adding the Sainsbury's would "reduce the impact of cost price increases on our customers by making sure that we limit the impact on the retail prices that we sell."
Part of that will involve working with its suppliers to help them become more efficient - and naturally Sainsbury's will expect lower prices from those vendors as a result.
Sears CEO Battles with Suppliers as Shares Continue Downward Spiral
Sears CO Eddie Lampert recently blasted some suppliers in an unusual blog post, accusing them of taking advantage of Sears' problems to embarrass it in the press and extort better payment conditions.
"There have been examples of parties we do business with trying to take advantage of negative rumors about Sears to make themselves a better deal," Lampert wrote in a blog. "In such a case, we will not simply roll over and be taken advantage of."
In a subsequent t post, Lampert took specific aim at one vendor, a subsidiary of China-based Techtronic Industries that plans to sue Sears over the terms of their supply agreement. Lampert, a hedge fund manager, said One World Technologies, which makes power tools for Sears' Craftsman brand, threatened to end the contract unless Sears agrees to "what we believe are unreasonable demands." Lampert said the company would take whatever legal action is required.
One World Technologies has been paid more than $868 million since 2007, Lampert said. He noted that Sears Holdings buys more than $13 billion a year in goods and services from all of its vendors combined and "we have always met our payment obligations."
Soon after the post was published, Sears filed suit against One World in District Court in Cook Country, Illinois, where Sears is headquartered.
Sears, however, has racked up a cumulative $10 billion in losses since 2012, avoiding a cash crunch only from loans from Lampert, cost cuts, and the sale or spin-off of key assets like the Craftsman brand, Lands' End clothing business and hundreds of its best stores.
 Amazon Courting Major Consumer Goods Brands to Sell Direct
Some of the world's biggest brands have been invited to Amazon's Seattle headquarters to hear about how they should start shipping products directly to on-line shoppers and bypass retail chains.
Executives from General Mills, Mondelez International and other packaged-goods companies will attend the three-day gathering.
But brands should be wary, says expert . Amazon can use algorithms, user reviews and sheer scale to kill the price premium that brands commands currently command.
Can Amazon be stopped before it hollows out the entire retail sector, Bloomberg asks? Will it face regulation - or even be broken up-before it does the kind of damage to retail that Facebook has already done to public discourse?
"If you are a brand or a retailer, it's worth staying tuned," Bloomberg writes.
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