Grocery Spend in Focus as Walmart Earnings Loom

No matter the economic climate, no matter where interest rates stand — everyone’s got to eat.

For the online retailing and eCommerce behemoths, earnings season is showing just how important groceries, as a category, have become.

That’s especially true for Walmart, which will report earnings Thursday morning (May 18), and where there’s been some prologue from quarterly reports seen from the likes of Amazon and Target.

In the latest update, Target noted in its earnings report Wednesday (May 17) a slowdown in discretionary spending but qualitatively cited “strength in frequency businesses” such as food and beverage. Earnings materials show that overall total comp sales were flat in the quarter, measured year on year, and store-level comp sales were up 0.7%, even with the decline in discretionary spending and a 3.4% slide in digital comparable sales.

The read-across here is that at least some of the softening in consumer spending is being offset by spending to keep the fridge and the pantry stocked. Roughly 21% of Target’s annual sales come from the food and beverage segment, as measured in the firm’s most recent annual report. Only beauty and household products represent a larger slice of sales, at 28%.

In another read-across for groceries, Kroger results in March logged 6.2% growth. And in a bit of granular insight, Kroger brands were up more than that, at 10.1% growth, which indicates that consumers have been shifting toward value and eyeing price as a key determinant of what they buy.

For Walmart, as go groceries, so go the company’s financial results. As detailed in the company’s latest annual report, in the U.S., for the fiscal year that ended in January, groceries represented nearly 59% of sales. Revenues from the category grew nearly 13% year on year.

The Threat and Opportunity From eCommerce

Walmart remains in a pitched battle with Amazon over eCommerce share (so does everyone else, of course). Amazon’s own results and earnings call commentary shed light on the fact that groceries remain a work in progress. As estimated by PYMNTS, Walmart has captured nearly 18% of overall spending on food and beverage versus Amazon’s roughly 2.6% share, as measured through the end of 2022.

But in an environment where more than 7% of consumers buy all their groceries online, the brick-and-mortar players — Walmart, Target and others — must gird their flanks a bit. The data showed that 44% of shoppers now buy the majority of various common grocery items during in-store visits, plummeting from 63% before the pandemic. The rising tide of eCommerce may not swamp omnichannel merchants, but it has the potential to eat away, at least somewhat, at those growth rates.

The opportunity is there for Walmart and Target to deepen their eCommerce presence. The decline in the latter’s digital sales, as noted in the most recent quarter, showed that online growth is not a given, which means, in turn, that price and promotions may be the keys to giving tailwind to online sales. That’s a long-term endeavor.

In the meantime, Walmart will show how it is weathering the pullback in discretionary spending, and whether groceries keep pulling same-store metrics and revenues onward and upward.