Online Grocery Is a Blessing and a Curse for Walmart

Walmart’s online grocery sales growth could take a toll on the rest of the business.

The megaretailer, the largest grocer in the world, shared in its 2023 Annual Report, released Thursday (April 20), that the rise in eGrocery sales could negatively impact the company’s ability to drive sales across retail categories.

“A greater concentration of eCommerce sales, including increasing online grocery sales, could result in a reduction in the amount of traffic in our stores and clubs,” the retailer stated in its 10-K filing with the U.S. Securities and Exchange Commission (SEC), “which would, in turn, reduce the opportunities for cross-store or cross-club sales of merchandise that such traffic creates and could reduce our sales within our stores and clubs and materially adversely affect our financial performance.”

Certainly, in the last few years, online grocery adoption has grown significantly. Research from PYMNTS’ recent study “ Changes in Grocery Shopping Habits and Perception ,” which draws from a December survey of more than 2,400 U.S. consumers, finds that nearly half of all shoppers now purchase groceries online at least some of the time. Plus, the share that buys groceries exclusively via eCommerce channels (7.2%) has grown 36-fold since before the pandemic.

Throughout this inflationary period, the company has been dealing with both the pros and cons of the strength of its food business. On the one hand, rising restaurant and grocery prices have sent consumers of all income brackets running to more budget-friendly options such as Walmart.

On the other hand, grocery’s margins are significantly narrower than other categories’, such that the retailer’s food and beverage business is at its strongest when it draws consumers in the door to drive sales of other, more profitable items.

Instead, grocery is coming to represent a larger share of the retailer’s total sales, and as consumers shop online, they no longer have the same exposure to the rest of the company’s offerings throughout their shopping journey.

Walmart reported last year that, for the fiscal year ended Jan. 31, 2022, grocery made up 56% of the retailer’s U.S. sales, totaling roughly $219 billion. Now, that share has risen to 59%, with grocery sales increasing by more than $28 billion to $247 billion.

Indeed, on an earnings call last summer, Walmart CEO Doug McMillon spoke to the challenges that the shift has had despite the advantages for the retailer’s overall market share.

“The cost of food and fuel [and] a heavier mix of sales in food and consumables … were among the most challenging items for us at the time,” McMillon said. “We continue to see a heavier mix of sales in food and consumables in many of our markets, and that put pressure on margins overall.”

Yet in the retailer’s 2023 Proxy Statement released Thursday alongside the Annual Report, Walmart stated that the way John Furner, EVP, President and CEO, of Walmart U.S., handled this shift was one of the highlights of the year.

“[Furner] guided the business successfully through an unpredictable and volatile environment, including managing supply chain disruptions, excess inventory, and a shift in merchandise mix toward food and consumables,” the statement noted.