How Walmart Is Beating Everyone In Groceries

Summary

Rising food prices have driven more Americans to Walmart, the largest US grocer, for affordable groceries. Inflation has broadened Walmart's customer base, including high-income consumers, as it captures over 25% of the grocery market with its low prices. The company is enhancing its online shopping, warehouse automation, and innovative delivery options to retain its growing customer base amidst fair competition concerns from small grocers.

Takeaways

• 📈 Food prices at home surged by 11.4% in 2022 and are predicted to rise by 5% in 2023, a significant increase compared to the 0.7% rise in 2019.
• 🛒 A growing number of Americans are shopping at Walmart due to its reputation for low prices, with the retailer capturing over 1 in 4 grocery dollars spent in the US.
• 💰 Walmart's low prices are attracting a wider demographic, including high-income consumers, who accounted for about half of the company's market share gains in the fiscal quarter ending January 2023.
• 🛍️ Walmart is enhancing its online shopping experience and investing in technology such as robots, drones, and direct-to-fridge delivery to boost its customer base.
• 📊 Despite gaining market share and a rising stock price, Walmart faces criticism for not competing fairly with small, independent grocers.
• 🏪 Regional grocers like HEB, Publix, and Wegmans pose a threat to Walmart due to their strong fan followings and could challenge Walmart's ability to retain newly acquired shoppers.
• 🚀 Walmart's early adoption of technology and innovation, such as the shopping cart and frozen dinners, contributed to its growth and dominance in the supermarket industry.
• 💼 Walmart's scale allows it to negotiate favorable prices with suppliers, giving it a competitive edge over other retailers.
• 🤖 Automation is being integrated into Walmart's operations to fulfill grocery orders more efficiently, with expectations that 65% of its stores will be serviced by automation by the end of fiscal year 2026.
• 🚚 Walmart has expanded its delivery options, including late-night deliveries and drone deliveries, making over 10,000 deliveries as of September 2023.
• 🏷️ Private label brands have been a success for Walmart, with four of the five most popular private label brands in the US being Walmart's, including Great Value.

Q & A

What was the percentage increase in food at home prices in 2022 according to the script?

Food at home prices in 2022 jumped by 11.4%.

What is the expected increase in food prices for 2023 as mentioned in the script?

The script expects food prices to increase by 5% in 2023.

How does Walmart's size compare to its next biggest competitor in the grocery market?

Walmart is more than twice the size of its next biggest competitor in the grocery market.

What percentage of grocery dollars in the US does Walmart take in, according to the script?

Walmart takes in more than 1 in 4 grocery dollars in the US, which is a 1.5% increase from 2021.

What impact is inflation having on Walmart's customer base, as described in the script?

Inflation is driving more customers across incomes to Walmart's stores due to rising prices for various items, not just food.

How has Walmart been enhancing its online shopping experience to attract more customers?

Walmart has been enhancing its online shopping experience by adding robots to its warehouses, ramping up programs like drone and direct-to-fridge delivery, and expanding its late-night delivery offerings.

What criticism does Walmart face in relation to its impact on small, independent grocers?

Walmart faces criticism for not competing fairly with small, independent grocers, as it sells products at prices that are sometimes lower than what these smaller stores can purchase them for.

What is the 'waterbed effect' as mentioned in the script, and how does it relate to Walmart's pricing strategy?

The 'waterbed effect' refers to the situation where a supplier lowers prices for a large retailer like Walmart, and then makes up for the lost revenue by charging smaller grocers more, potentially making it harder for them to compete.

How does Walmart's grocery business strategy benefit from attracting Supplemental Nutrition Assistance Program (SNAP) benefits recipients?

Almost 97% of SNAP shoppers purchase groceries at Walmart, and more than a quarter of total SNAP grocery dollars spent in the US went to Walmart, helping the company to dominate in terms of grocery dollars.

What is the significance of groceries being a low-margin business for Walmart, and how does this fit into their overall strategy?

Although groceries are a low-margin business, they enable Walmart to attract customers into the store, where they can then be sold higher-margin discretionary items like apparel and home furnishings.

How has Walmart's scale and ability to negotiate with suppliers contributed to its success in the grocery market?

Walmart's scale gives it a huge advantage in negotiating favorable prices with suppliers, allowing it to offer lower prices than competitors like Amazon Fresh and Target.

Outlines

00:00

🛒 Walmart's Growth Amidst Inflation

This paragraph discusses the impact of inflation on grocery bills, with a 11.4% increase in 2022 and a projected 5% rise in 2023, compared to a mere 0.7% rise in 2019. Americans are increasingly shopping at Walmart due to its reputation for low prices, which has attracted a broader demographic, including high-income consumers. Walmart's grocery business is benefiting from inflation, as it captures over 25% of grocery spending in the US, a 1.5% increase from the previous year. The company has also enhanced its online shopping experience and delivery options, including drone and direct-to-fridge delivery, to cater to the changing consumer behavior. However, Walmart's aggressive pricing strategy has been criticized for potentially harming small, independent grocers who struggle to compete with such low prices.

05:02

📈 Walmart's Dominance in Grocery Retail

The second paragraph delves into Walmart's rapid expansion in the grocery sector. It highlights the company's use of its financial strength and scale to negotiate favorable prices with suppliers, which contributes to its competitive advantage. Walmart's extensive store network, with over 4,600 locations in the US, allows for convenient shopping and curbside pickup options. The paragraph also mentions the company's investment in automation, with plans to have 65% of its stores automated by the end of fiscal year 2026, which is expected to improve profitability. Additionally, Walmart's e-commerce initiatives, such as same-day delivery for Walmart Plus subscribers and drone delivery, are aimed at attracting high-income consumers. The company's private label brands have also boosted sales, with Great Value being particularly popular. Walmart's strategy of using groceries to attract customers for higher-margin purchases is also discussed, as well as its success in attracting SNAP benefits recipients, which accounts for a significant portion of its sales.

10:03

🏪 The Challenge for Independent Grocers

The final paragraph addresses the challenges faced by independent grocers due to Walmart's dominance in the grocery market. It explains how Walmart's significant market share allows it to demand special pricing and conditions from suppliers, which can lead to a 'waterbed effect' where independent stores are charged more to compensate for the lower prices given to Walmart. The paragraph provides an example of how the entry of Walmart into a community can lead to the economic unsustainability of independent stores. It also touches on the overall growth of the top US grocery chains and the importance of the grocery business for Walmart, as it drives customer frequency and the potential for cross-selling higher-margin items.

Keywords

💡Inflation

Inflation refers to the general increase in prices and fall in the purchasing value of money. In the context of the video, it is a significant driver for Walmart's grocery business growth, as rising prices for various items, including food and housing, have led more customers across different income levels to seek out Walmart's low prices.

💡Grocery Bills

Grocery bills represent the total cost incurred by consumers for purchasing food and other household supplies. The video highlights the impact of high grocery bills on consumers, with food at home prices having jumped 11.4% in 2022 and an expected increase of 5% in 2023, causing financial strain and prompting consumers to look for more affordable options like Walmart.

💡Walmart

Walmart is identified as America's largest grocer in the script, known for its low prices and extensive reach. The company's strategy to attract a wider customer base through its low prices during times of inflation is a central theme of the video. The script also mentions Walmart's innovations in enhancing its online shopping experience and delivery services to meet customer demands.

💡Market Share

Market share denotes the portion of the market a company controls in terms of sales or volume. The video discusses how Walmart's low prices have resonated with high-income consumers, contributing to about half of the company's market share gains in food during the fiscal quarter ending in January 2023.

💡E-commerce Operations

E-commerce operations involve conducting business transactions electronically, especially over the internet. The video script mentions Walmart's efforts to beef up its e-commerce operations, such as the acquisition of Jet.com and the subsequent discontinuation of the site, as part of its strategy to improve its online presence and compete in the digital marketplace.

💡Automation

Automation refers to the use of technology to perform tasks with minimal human intervention. The script discusses Walmart's investment in automation, such as robots in warehouses and automated grocery order fulfillment, to improve efficiency, reduce costs, and potentially drive profitability in the long term.

💡Private Label Brands

Private label brands are products created by retailers under their own brand names. The video mentions that Walmart has four of the five most popular private label brands, including Great Value, which helps boost grocery sales and attract customers with the promise of quality at lower prices.

💡High Income Consumers

High income consumers are individuals with a higher level of disposable income. The script notes that these consumers are increasingly shopping at Walmart due to the current price sensitivity, indicating a shift in consumer behavior where even affluent customers are seeking value for their money.

💡SNAP (Supplemental Nutrition Assistance Program)

SNAP, formerly known as food stamps, is a government program aimed at reducing poverty and food insecurity by providing nutrition assistance to eligible low-income individuals and families. The video highlights that almost 97% of SNAP shoppers purchase groceries at Walmart, emphasizing the retailer's role in supporting low-income communities.

💡Independent Grocers

Independent grocers are small, privately-owned grocery stores that operate outside of large chain retailers. The script discusses the challenges faced by these grocers due to the bargaining power of large chains like Walmart, which can negotiate lower prices from suppliers, potentially leading to a 'waterbed effect' where independent grocers are charged more to compensate for the lower prices given to large chains.

💡Consolidation

Consolidation in the context of the retail industry refers to the merging of multiple businesses into fewer, larger entities. The video mentions the trend of consolidation in the US grocery market, with large chains acquiring smaller ones, leading to increased market control by a smaller number of major players.

Highlights

Grocery bills have surged, with prices at home rising 11.4% in 2022 and a further 5% expected in 2023, compared to a mere 0.7% increase in 2019.

Walmart, America's largest grocer, is benefiting from inflation as more customers across income levels turn to its stores for lower prices.

Walmart's grocery business is growing, with a 1.5% increase in market share from 2021, capturing over 25% of grocery spending in the US.

High-income consumers, accounting for half of Walmart's market share gains in food, are increasingly shopping at Walmart due to price sensitivity.

Walmart is enhancing its online shopping experience, incorporating robots in warehouses, and expanding drone and direct-to-fridge delivery services.

Walmart's stock price has been climbing alongside its growing market share, despite criticism over fair competition with small, independent grocers.

Inflation's impact on lower-income consumers is driving different shopping behaviors, with Walmart attracting new customers through its app and website.

Walmart faces competition from regional grocers like HEB, Publix, and Wegmans, which have strong fan followings.

The first supermarket in the US opened in the early 1900s, and the format flourished with inventions like the shopping cart and the rise of suburbs.

Walmart's growth in the grocery sector is attributed to its ability to negotiate favorable prices with suppliers due to its scale.

Walmart's massive footprint, with over 4,600 US locations, allows for convenient in-store purchases and curbside pickups.

Automation is being tested by Walmart to fulfill grocery orders more quickly and cheaply, with plans for 65% of stores to be serviced by automation by 2026.

Walmart's e-commerce initiatives include same-day grocery delivery for Walmart Plus subscribers and multiple delivery options, including drone delivery.

Private label brands like Great Value have boosted Walmart's grocery sales, with 72% of US consumers purchasing these brands.

Groceries, though low margin, enable Walmart to move customers into higher margin categories, contributing to its overall sales strategy.

Walmart attracts Supplemental Nutrition Assistance Program (SNAP) benefits shoppers, with almost 97% of SNAP shoppers purchasing groceries at Walmart.

The impact of Walmart's low prices on smaller, independent grocers includes challenges in competing with Walmart's negotiating power with suppliers.

The top ten US grocery chains, including Walmart, saw a 24% increase in sales from 2019 to 2022, highlighting the sector's growth.

Walmart's strategy to drive frequency through grocery sales can turn into higher-margin sales in other categories.

Transcripts

Sky-high grocery bills are inflicting pain at the

supermarket checkout counter. Food at home prices

in 2022 jumped 11.4%, and are expected to increase 5%

in 2023.

By comparison, prices rose just 0.7% in 2019.

In an effort to stretch their grocery dollars

further, a growing number of Americans are turning to

Walmart. The Arkansas-based retailer is America's

largest grocer, more than twice the size of its next

biggest competitor.

One of the biggest drivers for Walmart's grocery

business today is, ironically, inflation, as

prices have gone up for a lot of items not just food

but housing more customers across incomes are turning

to its stores.

Known for its low prices and massive footprint, Walmart

takes in more than 1 in 4 grocery dollars in the US, a

1.5% increase from 2021.

Walmart's low prices are also resonating with high

income consumers, who made up about half of the

company's market share gains in food in the fiscal

quarter that ended January 2023.

Inflation is having an impact, particularly for

those that don't have as much money, so we see them

behaving in different ways.

But we're also attracting a lot of new customers to come

to our stores, to our app, to our website.

Higher income families are shopping at Walmart because

they're so price sensitive right now.

When we think about the grocery landscape over the

next five and ten years, we see increasingly middle

America and affluent America shifting some of

their shopping basket over to Walmart.

To boost its customer base Walmart has enhanced its

online shopping experience, added robots to its

warehouses, and ramped up programs like drone and

direct-to-fridge delivery.

It's also expanded its late night delivery offerings.

As it has gained market share its stock price has

continued to climb, but Walmart, along with its

rivals, has also faced criticism that it doesn't

compete fairly with small, independent grocers.

You will see milk being sold in place of $1 a gallon,

less than what I can even buy for, eggs, you know,

anywhere from $00.25 to $0.50 or more less than what

I can purchase from.

As

long as we are not on a level playing field the more

we will see grocery store closures across the country,

the less opportunity there will be for these consumers.

And with inflation, cooling and prices leveling off will

Walmart be able to hang on to its newly acquired

shoppers?

One of its big threats is actually regional grocers

like HEB or Publix or Wegmans have really strong

fan followings.

CNBC looks into Walmart's grocery business to see why

even more Americans might be ordering food from the

company in the future.

The first supermarket opened in the US in the

early 1900s.

Inventions ranging from the shopping cart to the frozen

dinner, in addition to the rise of the suburbs, help

the format flourish.

Following World War Two, supermarkets emerged as the

leading food retailer in the US, with the number of

stores more than doubling from 14,000 in 1950 to

33,000 in 1960.

The format was such an integral part of American

culture Cold War propagandists used

supermarkets to showcase the advantages of

capitalism.

Tell me, who could possibly afford to buy food in a

place such as this?

This is just an ordinary food market most everybody

in America shops in stores like this from time to time.

40s. 50s.

60s. we had an incredibly robust and diverse market.

It's so interesting to me that in the 1950s,

independent grocers were about half the market.

They were going like gangbusters, like really

thriving. But we also had the growth of these chains

like Kroger and Safeway.

Sam Walton opened the first Walmart in Arkansas in 1962.

Two decades later, a full scale supermarket was added,

creating the chain's first supercenter.

Around the same time, Walmart launched Sam's Club,

its warehouse store.

By the early 2000s, Walmart was the country's largest

grocer. Walmart, in its early days, was more of a

destination for general merchandise that you needed

for your home and your life.

It's increasingly become your regular grocery store.

In an effort to beef up its e-commerce operations in

2016, it purchased online retail site Jet for $3.3

billion. Four years later, the site was discontinued.

If you look at the trajectory of our business,

it changed when we made that acquisition.

Not only did we pick up Mark Lore and a great team,

we picked up fulfillment centers, a lot of expertise

that ended up paying off.

Walmart's competitors were expanding, too.

Between 1997 to 2000, a fifth of all US

supermarkets, 4,100 stores in total were acquired.

By 2005 the 20 biggest US grocery stores, including

Kroger, Albertsons and Safeway, accounted for more

than 61% of total US grocery store sales.

And that consolidation continues today.

Grocery chain Kroger announced in October 2022

its plans to buy rival Albertsons in a deal valued

at $24.6 billion.

The US had over 63,000 grocery stores and

supermarkets in 2023, employing nearly 3 million

people. Together with

Sam's Club grocery sales were more than $300 billion

at Walmart in 2022, compared with Kroger, the

nation's second leading grocer that had sales of

$109 billion that year.

But how did Walmart's grocery segment get so big,

so fast? For starters, Walmart uses its deep

pockets and grocery muscles to negotiate favorable

prices with suppliers.

Walmart's scale has always been a huge advantage in

terms of its ability to negotiate with suppliers and

get really the best terms of any retailer in the

industry.

Based on a basket of 45 identical goods that

includes milk, a dozen eggs and a frozen pizza, Amazon

Fresh prices were about 28% higher than Walmart's.

Target's prices were about 9% higher than Walmart's.

Its massive footprint is another part of its success.

Walmart has more than 4,600 locations in the US alone,

enabling shoppers to purchase goods in store or

pick up curbside.

About 90% of Americans live within ten miles of a

Walmart store. They also act like mini-warehouses.

More recently, Walmart has been testing a way to

automatically fulfill grocery orders, so it's

adding automation in the back of stores.

It actually made an acquisition of Alert

Innovation, which is a company that essentially has

a bunch of robots that act almost like a larger version

of a vending machine that helps pick different

groceries and make it speedier and cheaper to

fulfill online grocery orders.

Even this year, they've talked about investing, I

think close to $18 billion or $17 or $18 billion in

capital expenditures.

A lot of which is going to go toward automation, which

should help to drive over time better profitability.

Walmart said it expects 65% of its stores to be serviced

by automation by the end of fiscal year 2026.

Automation could make some jobs obsolete.

Walmart, the country's largest private employer,

has 1.6 million workers on staff in the US.

It is also upped its e-commerce game and added

convenient shopping options to entice high income

consumers. It added same day grocery delivery for

Walmart Plus subscribers, advertising that delivery

could come in as little as 30 minutes.

Walmart has also rolled out multiple delivery options.

Drone delivery, which began in 2021 and is available in

a handful of markets including Texas and Florida,

has made more than 10,000 deliveries as of September

2023. An additional delivery option for Plus

members is Walmart In-Home, available in 46 markets

including Miami and Dallas.

The service features a store associate who can

deliver groceries to your door, your garage, or even

inside your kitchen while you're away from home.

Private label brands have boosted grocery sales as

well. Walmart has four of the five most popular

private label brands, including Great Value, which

was purchased by 72% of US consumers, according to a

2022 report.

You don't want to be in the path of Walmart.

You don't want to be in the path of Amazon.

Ten years ago, there might have been this idea that,

oh, you know, the supercenters are all rolled

out. There's no more growth ahead for Walmart.

But e-commerce is really this next leg of growth.

And if you can weave in the automation behind it and

keep adding to a simpler and cleaner shopping

experience, I don't see why we don't get another leg of

growth here ahead for Walmart.

And while groceries are considered a low margin

business, they also enable Walmart to move customers

into high margin discretionary spending

categories like apparel and home furnishings.

So Walmart doesn't have to really make much in terms of

groceries. They could even lose money on groceries

because part of the strategy is to bring people

in and then sell them all the other stuff.

Groceries made up 59% of Walmart US's 2022 net sales,

followed by general merchandise and health and

wellness. Walmart US accounted for 69% of the

company's 2022 sales.

Another way Walmart dominates its rivals in

terms of grocery dollars is by attracting Supplemental

Nutrition Assistance Program benefits.

SNAP is the government program formerly known as

food stamps, to help reduce poverty and food insecurity.

SNAP provides nutrition assistance to millions of

eligible low income individuals and families.

Almost 97% of Snap shoppers purchase groceries at

Walmart in the past year, spending on average nearly

$2,300.

More than a quarter of total snap grocery dollars

spent in the US went to Walmart that year, compared

with about 8% at Kroger and less than 6% at Albertsons.

But what impact did Walmart's low prices have on

smaller, independent grocers?

For an independent grocer, the challenge that they're

facing right now is that Walmart and a few of the

other big grocery chains are going to major grocery

suppliers and saying, hey, we're 25% of your sales, and

we want you to give us special favors.

We want lower prices than you give to all of our

competitors. We want assorted like marketing

dollars to come to us.

We want you to organize your packaging to fit our

parameters. You know, all of these different things.

And the suppliers, you know, what's their choice?

Critics argue that could create something known as

the waterbed effect.

If a supplier lowers prices, they will need to

make up for that lost revenue elsewhere by

charging smaller grocers more.

Independent grocers account for a third of US grocery

sales. Jimmy Wright is the owner of Wright's Market, a

20,000 foot grocery store in Opelika, Alabama.

Typically, what you will see is a community where the

entry into Walmart is just it just takes most of all

the business in the town.

So even if it doesn't take an independent grocers

business completely, it takes it to a level where

the store is no longer economically sustainable.

The ten largest US grocery chains, including Walmart,

Kroger, Costco and Albertsons saw sales of $863

billion in 2022, 24% higher than 2019.

One of the key reasons why Walmart wants to be in the

grocery business is because people need to replenish

their fridges. They may not get a new wardrobe, they may

not need to buy a toy for their child, but they do

need some of those basic items to cook dinner that

night, or make breakfast or pack their child's lunch.

And those items tend to drive frequency.

And that frequency can turn into other sales of other

items that tend to be higher margin.

And if Walmart can get people to cross the aisle

from the dairy aisle to the clothing aisle, that's

really where it makes its money.