International giant has a secret weapon against Checkers and Pick n Pay in South Africa

Walmart’s philosophy of Every Day Low Prices is set to be a significant advantage for the retailer against stiff competition in South Africa. 

This philosophy enables the retailer to be less reliant on promotional activity to drive foot traffic and sales at its stores, building strong loyalty among consumers.  

South African retailers, on the other hand, have become increasingly reliant on discounts and other promotional activities to drive sales at their stores. 

This activity tends to drive a temporary bump in sales at the expense of long-term loyalty, with customers shopping around for the best prices rather than making regular, repeated purchases from the same store. 

Of concern for established retailers in South Africa is that it appears as though promotional activity is having a declining impact on store sales and foot traffic. 

With promotional activity becoming less impactful, Walmart is set to benefit from its Every Day Low Prices philosophy. 

Data from Trade Intelligence shows that South Africa has one of the highest levels of promotional intensity in the world, with a substantial share of sales being driven by promotional activities. 

This is driven by the operating models of local retailers, which have used price cuts and promotions as a response to constrained shopper budgets and elevated competition. 

Trade Intelligence said, in this environment, discounting helps protect volumes, loyalty programmes drive foot traffic, and “value” becomes synonymous with visible price cuts. 

This is a double-edged sword, boosting sales in the short term but having negative long-term consequences. 

In South Africa, these promotions are also becoming less effective as they become the norm rather than the exception. 

As a result, retailers risk losing the loyalty of their customer base, which is a major pitfall of sustained, high promotional activity. 

Shoppers can change their minds, and in such an environment will begin cherry-picking offers from a diverse range of retailers and brands in search of the lowest price, Trade Intelligence said. 

According to Trade Intelligence research, 58% of South African household shoppers shop at four or more different retailers and have, on average, 3.6 loyalty cards.

It also noted that aggressive promotional activity has resulted in “promo-only” shoppers, who wait for their items to go on sale before buying them. 

This makes the sales of retailers increasingly sensitive to promotional activity and aggressive price cuts, resulting in it being more difficult for them to sell items at full price, squeezing their margins. 

Every Day Low Prices

Walmart’s approach is significantly different from that of South African retailers, with it promising shoppers Every Day Low Prices. 

This strategy aims to offer customers the lowest prices for products consistently, rather than relying on temporary sales, discounts, or promotional events. 

As a result, consumers do not have to wait for a sale, collect rewards points, or maximise high-promotion periods. They can shop at the same store on a regular basis, knowing they are getting the best price possible. 

This also ensures that Walmart captures large-basket shoppers who buy everything in one trip, rather than buying different products from different stores based on promotional activity. 

The approach builds long-term shopper loyalty and is built upon what the American retailer refers to as a “productivity loop”.

By having lower operational costs than competitors, Walmart can lower prices, which delivers higher sales volumes, which then enables it to lower prices further through enhanced bargaining power with suppliers. 

It is unclear if this loop can be achieved in South Africa, with Walmart’s presence still being relatively small in the local market, limiting its ability to have purchasing power with suppliers. 

Former Shoprite CEO White Basson, who is a South African retail legend, has said that it would not be easy for Walmart to gain significant market share in South Africa using the same model it has in the United States and elsewhere. 

Basson said that new entrants are good for the consumer and the broader market, as they keep established players on their toes. 

However, he is sceptical of Walmart’s Every Day Low Prices model, as South African consumers are used to the high-low promotional culture in the country. 

Local consumers are also used to loyalty programmes, which have become entrenched in recent years. While saving shoppers money, they also give stores access to immense data on buyers. 

Despite this, Basson has said that if Walmart can get its model to work in South Africa, which is heavily reliant on it having high sales volumes to drive down prices, it can present a substantial problem for local retailers. 

If it proves successful, other retailers may have to adjust their pricing strategies and lower their ‘normal’ prices to compete, eroding margins. 

Daily Investor created a small basket of everyday products, including milk, bread, breakfast cereal, and frozen products.

The pricing comparison, done in mid-January, showed that Walmart was cheaper on nearly all products, except when Checkers or Pick n Pay ran a special promotion.

This aligns with Walmart’s “Every Day Low Prices” strategy and the other retailers’ high-low promotional culture.