What can 3 cents do for Wal Mart

Update 1/21/2010:  Nielsen’s numbers, published in Jan 2010, confirm my estimate of the effect of  1 cent price increase.
Wal Mart has 11.3% share of the $3 trillion US retail market. Roughly 49% of its revenues come from groceries. A basket of 31 grocery products, as compared by J.P.Morgan, costs $92.77 at Wal Mart.

Let us assume that these 31 products represent 80% of the grocery sales at Wal Mart.

Suppose Wal Mart improved its prices by just 1%, that is 93 cents on the basket of 31 products or 3 cents per item.

That is $1.33 billion in pure profit.

Wal Mart last reported an annual profit of $13.4 billion.

Just 3 cents price improvement per product will yield $1.33 billion.

Or 1 cent price improvement will yield $443 million in profit!

Just 1% price increase on just 31 products will result in 10% increase in its profit.

That’s the power of pricing.

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