Wait, Who Is Beating Walmart on Food Prices!?

The ongoing battles in retail, especially as it pertains to pricing, may be taking a larger toll on Walmart's (WMT) model than previously thought.

Analysts with Wolfe Research, who recently completed trips to Walmarts and Krogers (KR) in Houston and Atlanta, discovered that Kroger's prices were lower in both markets.

"Kroger, with what appears to be some help from its consumer packaged goods partners, has been very aggressive on the pricing front lately, apparently challenging Walmart's strategy outlined two years ago at its Investment Community Meeting to re-establish its historical price gaps to competitors," the analysts noted.

Because Kroger competes more with Walmart than any other retailer, its pricing model has suffered because of Walmart's low-cost pricing model. As a result, "Kroger has eliminated its price premium with Wal-Mart in certain markets, at least for now," Wolfe noted.

"In our opinion, these activities by competitors are testing Walmart's resolve on its strategy and Walmart's reaction (or lack thereof) puts the industry at a very important crossroad with significant implications for the equities, especially Kroger's," Wolfe concluded.

Shares of Walmart were rising in afternoon trading on Tuesday, while shares of Kroger were spiking over 2.5%.

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