How Walmart makes money by pricing milk & eggs below cost
Today we’re going to look at the idea of loss leaders, where retailers sell some items at a loss in order to attract customers. We’ll use Walmart as our main example but we’ll look at a few others too.
Let’s start with some recent news. In case you hadn’t heard, Amazon recently bought Whole Foods and their first act, practically on day one, was to slash prices. It seems strange, doesn’t it? Whole Foods is a really strong brand, famous for it’s high quality produce. Why not just use the existing Amazon distribution structure to help it expand?
Well Amazon know that the reason they are so dominant online is that they operate at very fine margins, and Walmart are not that much different. So, if you want to compete in the grocery business, you have to go cheap; seriously cheap.