Where Walmart CEO expects inflation to stick around in 2023

Where Walmart CEO expects inflation to stick around in 2023

Walmart CEO Doug McMillon on inflation and holiday shopping season

Retail sales slumped on Thursday even though the latest data on consumer prices earlier this week showed a cooling. Walmart CEO Doug McMillon says the retail giant is managing for inflation and a slowdown in consumer demand that extends into 2023, and the economic conditions are changing what shoppers will see on the shelves of the nation’s largest retailer.

Grocery sales, responsible for 56% of Walmart’s revenue, is a key inflation read for the McMillon and company.

“We’re managing this item by item, category by category,” McMillon said in an exclusive interview with CNBC at the Hope Global Forum in Atlanta earlier this week. “We have a plan and adjusted our inventory to be ready for this next year.”

McMillon’s comments came after November CPI report that showed consumer prices rose 7.1% year over year, which was below estimates, but before the retail sales decline posted on Thursday.

Food prices remained elevated, rising 10.5% year over year. Grocery sales require more regular shipments than general merchandise, and trucking prices are also elevated, approximately 35% higher year-to-date, according to data from Evercore ISI.

“What we’re seeing is that if you take the fresh food categories, commodities, things like proteins, things are starting to move. Chicken right now is more expensive, but beef is down. Fruit and vegetable is in pretty good shape,” McMillon said. “But dry groceries, consumables is where we’re seeing the most stubborn and persistent inflation, mid double-digit inflation. And we’re not hearing from our suppliers looking forward that’s going to come down soon,” he said.

General merchandise categories have started to adjust because demand has softened, according to McMillon, but he added, “We think there’s going to be persistent inflation with us for a while, in drug, grocery and consumables.”

McMillon said Walmart is continuing to look for new technology to maintain inventory and increase the speed of its e-commerce business. That includes a commitment to purchase thousands of delivery EVs from General Motors’ subsidiary BrightDrop and Canoo; the opening of next-gen fulfillment centers that use automation and artificial intelligence; and the acquisition of robotics startup Alert Innovation.

“There’s so much it’s possible today with technology, whether it’s the way we use data, the way we put smarter algorithms to work or the way we deploy automation through our supply chain. There are a lot of changes coming in distribution centers, fulfillment centers, last mile with EVs (electric vehicles) and delivery,” McMillon said.

The Hope Global Forum is the annual event for Operation Hope, one of the nation’s largest non-profits focused on financial literacy. Walmart is also a founding member of Financial Literacy For All, an initiative lead by Operation Hope that also includes Disney, Bank of America, Walgreens,  Delta Air Lines, Ares Management and other companies.

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