What Walmart Is Getting Right About Online Grocery: Gadfly

Of all the ways Walmart Inc. will do battle with Amazon.com Inc., I suspect none will be more important than their face-off in the grocery business.

It’s a fight Walmart simply can’t afford to lose; groceries made up 56 percent of its U.S. sales in its latest fiscal year. Along with the revenue the grocery department generates, it is key to driving foot traffic to Walmart stores and building customer loyalty.

As Gadfly’s Shira Ovide has pointed out, we’ve likely hit a tipping point in which this category of shopping -- long insulated from the threat of e-commerce -- is about to become much more digital.

Investors recently have gotten skittish about Walmart’s wider e-commerce business, after its once-sizzling sales growth in that channel cooled significantly in the fourth quarter. But they should take at least some comfort in recent survey data suggesting Walmart is getting some things right in online grocery.

It’s true that, in a study by Coresight Research, more shoppers reported buying groceries online at Amazon in the past 12 months than reported buying them online at Walmart:

But there are different types of online grocery shoppers: There are those for whom this is a routine, preferred way of filling their pantry and refrigerator. And there are others who just occasionally toss dish soap or a box of granola bars in their digital shopping carts.

Walmart, notably, has a higher share of shoppers who are true converts to online grocery shopping. As Coresight puts it, more people appear to be doing “full-basket” shopping online with Walmart than with Amazon.

It’s a good sign for Walmart that early adopters of online grocery shopping are choosing the retailer for this service -- and that the user experience is apparently satisfactory enough to keep them coming back.

Over the years, one of the knocks against Walmart’s e-commerce efforts has been that it tended to move too slowly. (Remember Shipping Pass, the membership-based free-shipping program it briefly tested some 10 years after the debut of Amazon Prime?)

But, lately, when it comes to online grocery, Walmart has been hustling. It offers store pickup of online orders from about 1,200 of its stores and is set to add 1,000 more locations this year. By the end of this year, it has said it will offer grocery delivery in more than 100 metro areas, covering 40 percent of U.S. households.

I suspect this is part of why it has been able to attract a quite large share of online grocery shoppers compared to traditional retailing peers that are also scrambling to make an e-commerce transformation.

Also, it’s important to keep in mind that Walmart has been aggressive in expanding its online grocery offering at a moment when Amazon does not appear to be moving very decisively on this front. It recently added delivery from Whole Foods locations in several cities -- but also has scaled back its AmazonFresh delivery program.

Walmart has long argued that its massive brick-and-mortar footprint and existing supply chain infrastructure would be an asset, not an albatross, in the tricky business of fulfilling orders of perishable goods. These latest data points suggest the big-box store, indeed, is figuring out how to make these things work to its advantage.  

Of course, the competitive landscape could all change very quickly: Kroger Co. recently expanded its partnership with Instacart so it could deliver groceries to more households. Target Corp. is adding same-day delivery of groceries and other items to more markets, thanks to its $550 million acquistion of Shipt. And who knows what Amazon’s end game is with Whole Foods. 

But Walmart is off to a good start in online grocery. Now executives have to make sure they don’t squander the early momentum.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

Sarah Halzack is a Bloomberg Gadfly columnist covering the consumer and retail industries. She was previously a national retail reporter for the Washington Post.