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.
