By Minsi Chung and Renee Dudley – Sep 16, 2013
Wal-Mart Stores Inc. is so committed to becoming America’s biggest beer retailer that it has been selling Budweiser, Coors and other brews almost at cost in at least some stores.
The markup on a 36-pack of Coors Light cans at a Los-Angeles-area store was 0.6 percent, compared with 16.2 percent for a package of Flaming Hot Cheetos, according to internal documents reviewed by Bloomberg. Companies typically don’t release information about markups so the March data provide a rare glimpse of Wal-Mart’s alcohol pricing strategy.
Wal-Mart’s push into beer is part of a plan to double alcohol sales by 2016 and seize a larger slice of a U.S. beer market worth about $45 billion. While founder Sam Walton frowned on drinking to excess, selling cheap suds is a way to lure shoppers who typically buy other products at the same time. Repeat visits are crucial for the world’s largest retailer, which last month cut its profit forecast and reported second-quarter profit and sales that missed analysts’ estimates.
“We continue to look for opportunities to invest in price,” Wal-Mart U.S. chief Bill Simon said at a Goldman Sachs conference last week. “A great example for us is adult beverages. We have been continuing to move prices lower on that and seeing returns in the form of market-share gains in that category.”
The markups on 36-packs of Tecate cans and 24-packs of Corona Extra bottles at the Los-Angeles-area store, were 0.6 percent and 1 percent, respectively. By contrast, Wal-Mart sold Coca-Cola 20-ounce bottles for 29.9 percent above cost, according to the data. Cereals such as Quaker Quick Oats and Honey Nut Cheerios were marked up 32.5 percent and 16.6 percent, respectively.
Deisha Barnett, a Wal-Mart spokeswoman, said pricing is determined market by market and declined to say whether the markups were nationally representative.
“This is nothing new that we’re investing in price in adult beverage,” she said in a telephone interview. “Grocers have long invested in this to drive traffic.”
Wal-Mart’s gross margin, the percentage of sales left after the cost of goods sold, was 24.7 percent for the quarter ending July 31. Target’s gross margin in the quarter ended Aug. 3 was 31.4 percent.
A year ago, Chief Merchandising Officer Duncan MacNaughton told 500 alcohol industry representatives attending an “adult beverage summit” at Wal-Mart’s Bentonville, Arkansas, headquarters that the company would discount alcohol as part of its strategy to gain share in the category. Wal-Mart has since discounted a range of mainstream and craft beers, doubled the number of alcohol buyers to 12 and cleared more shelf space to promote alcoholic beverages.
Wal-Mart has risen 9.6 percent this year, compared with a 19 percent advance for the Standard & Poor’s 500 Index. The shares advanced 0.6 percent to $74.78 at the close in New York.