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Online Grocery Is a Land Grab, and Walmart Is Winning

Walmart (NYSE: WMT) has quickly come to dominate the online grocery market thanks to its massive brick-and-mortar presence. The big-box retailer plans to offer curbside pickup at over 3,100 stores by the end of the year, covering 80% of the U.S. population, and its delivery service will reach about 50% of American households. As a result, the company has attracted 62% more customers than its next closest rival in online grocery, Instacart, according to a recent survey from Second Measure.

An interesting note in the survey is that online grocery shoppers are fiercely loyal. No service outside of Instacart shared more than 9% of their customers with any other service in Second Measure's survey. So, Walmart stands to gain from the first-mover advantage in many of the markets it's entering, putting pressure on competitors like Amazon (NASDAQ: AMZN), which has been much slower to expand.

Image source: Walmart.

Staking its claim

Walmart is already the nation's biggest grocery retailer and by a wide margin. As more and more shopping moves online, the company has followed suit. It's already seen considerable benefits, drawing in new customers thanks to the ease and convenience of its curbside pickup. It remains to be seen, though, if online grocery sales will translate into greater sales of general goods, where Amazon dominates the market.

Drawing in new customers and expanding the products they buy from Walmart's online platform are essential for Walmart to continue growing. Moving grocery sales from its stores to its online platform merely cannibalizes itself at lower profit margins. That said, it's better than losing those sales entirely to the competition.

So far, Walmart has done an excellent job expanding the service and marketing it. It's well ahead of Target (NYSE: TGT), which acquired same-day delivery service Shipt in 2017 and quickly expanded the service to include all of its stores. But Shipt comes with a relatively expensive annual fee, while Walmart's curbside pickup is free. Target recently took steps to integrate Shipt with its own website, but it still charges an additional fee for the service's same-day delivery.

Meanwhile, Amazon has taken its time expanding its Prime Now grocery delivery from Whole Foods stores. Not only does Whole Foods have about 10% of the number of stores Walmart has, but Amazon also doesn't support pickup and delivery from all of its locations. It reached 88 metropolitan areas for delivery in May.

Walmart's rapid expansion in online grocery ordering has facilitated its strong customer growth compared to the competition. The loyalty of online grocery shoppers should help it hang onto those customers even as competition increases.

But there's a lot of growth left in the market

It's important to note that while Walmart dominates online grocery today, it's still very tiny compared to the entire grocery industry, as well as the potential for online grocery. Second Measure said just 12% of respondents said they've tried at least one of the online grocery platforms it analyzed. Analysts expect rapid growth in the market over the next few years as more and more consumers come online.

In other words, there's still plenty of time for Amazon and others to catch up.

Amazon is considering plans for a new grocery chain designed with online orders in mind. Amazon may be able to generate more efficient stores than Walmart and offer a better customer experience by designing stores that consider those factors from the start. By comparison, Walmart has had to shoehorn the service into its existing stores, and it's unclear how the company will handle growing demand.

Walmart has successfully defended its biggest source of revenue as more shopping transitions online. That creates a strong base for it to continue growing. But the retail giant needs to stay vigilant in its efforts to bring new customers onto its platform, especially as the competition starts to catch up.

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John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Adam Levy owns shares of Amazon. The Motley Fool owns shares of and recommends Amazon. The Motley Fool has a disclosure policy.


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