From Our Print Edition

Is it possible that a rising tide does not lift all boats? Online grocery sales are forecast to grow at three times the rate of total dollar sales in the coming years, but market share numbers show that Walmart is gaining while other supermarkets, including national, regional and independent, are ceding ground.

Online grocery is forecast to grow at a compounded annual growth rate (CAGR) of 4.5% through 2028, compared to 1.3% for in-store sales, according to Brick Meets Click, Barrington, Ill. Delivery and pickup sales are expected to account for 10.7% of total grocery revenues at that time.

This year, e-grocery dollars fell in the first quarter but rebounded in the second as companies, including Walmart, Instacart and Target, offered discounted annual memberships to their free home delivery subscription programs.

DELIVERY OUTPACES PICKUP

The second quarter also saw a shift from pickup to home delivery as consumers took advantage of low purchase minimums, typically $35, associated with annual membership subscriptions.

David Bishop

“Walmart’s trying to build its delivery business, and it’s been very effective at doing that using half-off deals on Walmart+,” says David Bishop, partner and research lead at Brick Meets Click.

Walmart has backed its Walmart+ subscriber push with rollbacks on thousands of items that have reinforced its everyday low-price image, product selection that goes beyond groceries, and high service levels in both delivery and pickup to differentiate itself from smaller grocery rivals. Walmart’s share of online grocery grew to 37% in the second quarter, up from 35.5% the year before and 28.2% in the second quarter of 2021. Supermarkets’ share of online grocery sales stands at 27.3%, down from 29.8% last year and 34.3% in 2021.

Bishop points to the inflationary struggles American households have faced as playing to Walmart’s advantage in using delivery.

“If you want to save money in the physical world, you go to Walmart, but that may mean driving five miles instead of a half mile to your local supermarket. So, the trade-off may be my time versus the cost when deciding where to shop. This is part of the challenge the regionals [supermarkets] are facing. Delivery disintermediates the competitive advantage that supermarkets have traditionally had over mass discounters, Walmart, in particular.”

According to Bishop, Walmart derives other benefits from signing up members to Walmart+. It locks in customers seeking to recoup their subscription investment, leading to more frequent purchases, higher average rings and lower per-order costs for itself that come with increased fulfillment volumes.

ICE CREAM THAT DOESN’T MELT

Pickup remains vital to online grocery operations, particularly in frozen categories.

Bishop says frozen has been “a struggle” for some grocers that rely on third-party drivers to deliver orders since most vehicles are not set up to maintain the cold chain. There is also the element of human error when delivered items are left in the heat for too long.

Maintaining product quality and customer relationships is part of the appeal of first-party delivery. Bishop says Walmart’s In-Home service is particularly attractive to high-income households, fueling the retailer’s gains.

Pickup, which is expected to grow at a faster pace than delivery over the long run, helps protect the cold chain.

‘Frozen is the hardest to deliver.’

“Frozen is the hardest to deliver. With pickup, stores maintain the cold chain more effectively because that item is held at the proper temperature in the staging area. The transfer occurs curbside in the parking lot, and it’s very similar to when you shop the store, right? Now the burden shifts to the customer, and if the ice cream melts in the customer’s car, it is not the retailer’s fault,” concludes Bishop.