The Reason Even Retailers That Raise Prices Want to Keep Your Grocery Bills Down

Big retailers say they need to raise prices. They’d rather not do it in the grocery aisle.

Executives at several big chains have lately said they want to keep food prices manageable, and experts say there’s a good reason for that: While groceries are must-buy goods, shoppers who don’t like the prices they see could look elsewhere.

Walmart (WMT) executives have said fighting food inflation is top-of-mind. BJ’s Wholesale (BJ)  leaders want to keep their food prices 25% lower than those at grocery stores. Target (TGT) and Costco Wholesale (COST) executives on recent conference calls said they’re selling seasonal fare and kitchen staples at bargain rates.

General retailers have traditionally treated food as a “loss leader,” experts said, meaning companies may set prices meant to draw in people who might pick up other, higher-profit items.

“The psyche of the consumer could be: I just saved on my groceries, so I can splurge,” said Sally Lyons Wyatt, global executive vice president and chief advisor at Circana, a market research company. This may pave the way for purchases of items that have seen price increases, Lyons Wyatt said, such as tech gadgets or pet products. 

Grocery Prices Can Drive Visits and Boost Loyalty

Groceries are vital to “a retailer’s business plan, providing essential goods that encourage frequent visits and foster customer loyalty,” said Steve Zurek, vice president of advanced analytics thought leadership at market research firm NielsenIQ. 

Companies that sell food have some flexibility, experts said. Many—though not all—grocery items are sourced domestically, meaning they’re less likely to become more expensive due to tariffs, said Stewart Samuel, director of retail futures at IGD, a food industry insights group. 

Retailers are mindful that Americans are still acclimating to food prices that surged during the pandemic. Given how frequently people buy food, higher grocery prices can have a dramatic impact on brand perception and consumer confidence, experts said.

“We’ve been through a number of years here where prices have gone up on food, and our customers have felt that,” Walmart CEO Doug McMillon said during an earnings call earlier this month. “They don’t want any more food inflation.”

Walmart won’t let pressure on general merchandise bleed into the grocery section, McMillon said. Low food prices are a priority, he said, while acknowledging that the retailer may raise prices on foods that are difficult to source domestically, such as bananas, avocados and coffee.

“A lot of retailers take Walmart’s lead,” said R. J. Hottovy, head of analytical research at Placer.ai, a firm that measures retailers’ foot traffic. “A lot of chains are going to try to do that, but not every retailer is going to have the same ability.”

One Retailer Lifted Imported Flower Prices—But Not Fruit

Perishable items have propelled recent growth at BJ’s, CEO Bob Eddy said on an earnings conference call this month, adding that the company wants to use competitive prices to “gain market share in these times of disruption.”

“Our advantaged structure allows us to consistently offer up to 25% off grocery store prices, and we are committed to maintaining this edge,” Eddy said, according to a transcript made available from AlphaSense.

Target is adding seasonal food and beverages to sections stocked with $1 to $5 items, while Costco is getting comfortable with the idea that it may have lower profit margins on pineapples and bananas, executives at those companies said recently.

Costco started charging more for flowers sourced from Central and South America, but held off on doing the same for fruits from that region, CFO Gary Millerchip said on an earnings conference call this week. 

“They are key staple items for the member,” Millerchip said, according to a transcript. “We felt it was important to really eliminate the impact there.”