Blog: Dean BestWal-Mart's warning is a warning for all

Dean Best | 14 August 2007

Today’s profit warning from Wal-Mart will send repercussions throughout the retail community.

The US retail giant said this afternoon (14 August) its sales are under pressure as consumer spending is being squeezed.

Aside from the obvious concerns for Wal-Mart’s management, employees and investors, the warning will raise serious questions about how the ever-more gloomy outlook on consumer spending will affect the food industry.

In recent months, many brand-owners and retailers have talked up the potential for “premiumisation” but, in reality, how lucrative will moves in this direction be when consumers are facing rising bills and interest rates?

A number of UK food producers, hit by the severe recent weather in the country, have called on the help of the country’s retailers as they look towards recovery. But, with consumers increasingly watching what they spend, how easy will it be for retailers to increase prices and help producers and manufactures generate a decent turnover this year?

A number of food manufacturers around the globe have also spoken out about the mounting cost of raw materials, prompting concern that food prices will rise in the coming months.

And with the prospect of rising food prices – or, in economist speak, agflation – comes the double whammy to consumers of higher interest rates. This would only compound retailers’ concerns over the spending power of consumers, while also strengthening retailers’ fears that their growth will be squeezed.

In fact, there have been signs that retailers, if only in the UK, are realising that something’s got to give. Tesco, Asda and Morrisons have all slashed thousands of prices in recent weeks and retailers are increasingly flagging up that they represent the best value for money for consumers.

It seems there will be a bumpy ride ahead.


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