The Supply Side: Walmart keeps online grocery lead, Amazon challenges

Walmart continues to grow its share of online grocery to almost 26% of the total $9.8 billion spent in June. Total online grocery spending in July exceeded $10 billion, up 26% from the prior year, according to the Brick Meets Click Grocery Survey conducted by Mercatus.

Total grocery spending in July grew 2.7% versus a year ago, while online grocery spending climbed 26% year over year. Online grocery accounted for 17.2% of the total e-grocery receipts in July.

Mercatus reports that July set a record for e-grocery use with 81 million, or approximately 61% of U.S. households, buying groceries online. Compared to a year ago, the overall number of monthly average users rose almost 11%. The number of online grocery orders completed in July increased 6.5% from a year ago.

Walmart’s share of the online grocery market peaked at 28.3% in October 2024. The share dipped to 20.7% in January but has averaged above 24% each month since, Mercatus reports. Walmart is also part of the mass segment that includes Target and other superstores. The mass segment captured 33.6% of the e-grocery market share at the end of June. The mass segment peaked at 39.7% in October 2024.

Mercatus notes that Walmart has a strategic advantage with its ownership of first-party consumer data. The retail giant also has a supply chain advantage with stores and distribution centers located within 10 miles of 90% of the U.S. population.

David Bishop, partner at Brick Meets Click, said the elimination of fees, like standard delivery costs, via a membership or subscription removes a top barrier to increased usage, and customers are taking advantage of it. He said online grocery orders for delivery totaled $4.3 billion in July, up 36% year over year. Bishop said consumers view free delivery with subscription as more convenient, but also more expensive than store pickup for online orders. Pickup orders totaled $4 billion in July, up 24% from a year ago.

Amazon has largely been seen as a ship-to-home retailer for consumables, and this segment ended July with $1.6 billion in online sales, up 10% from a year ago.

“In an era where ‘free’ delivery is setting new customer expectations and Walmart’s retail media revenue fuels its competitive edge, regional grocers face mounting pressure to profitably serve shoppers online,” said Mark Fairhurst, chief growth marketing officer, Mercatus. “Grocery retailers that own and activate their customer data to target and personalize offers — especially for infrequent or lapsed shoppers — can turn renewed engagement into lasting loyalty, defending both sales and margins.”

AMAZON CHALLENGE
This advantage will be put to the test in the coming months. Amazon recently announced a same-day grocery delivery service for Prime members in more than 1,000 cities for orders over $25. The online juggernaut expects to expand the service to 2,300 cities by the end of the year.

Prime members in select areas may order batteries or hair products and get cereal, blueberries and milk all in the same order. If the order does not reach the $25 free threshold, the customer can choose same-day delivery for $2.99. Non-Prime members will pay $12.99 for delivery, regardless of the order size.

Amazon called the move “one of the most significant grocery expansions” for the online retailer as it introduces thousands of perishable items into its existing logistics network.

Doug Herrington, CEO of Worldwide Amazon Stores, said in the test markets, many customers used delivery service compared to those who didn’t purchase food. Based on early sales, Amazon said strawberries now regularly knock AirPods out of the top five best sellers of all products sold, while bananas, Honeycrisp apples, limes, and avocados round out the top 10 best-selling perishable grocery items in their same-day delivery carts.

This is not Amazon’s first attempt at grocery delivery. In 2017, it spent $13.7 billion to acquire Whole Foods with designs on growing its market share in fresh foods. But five years later, Amazon/Whole Foods was still just 2.4% of the grocery market share. Walmart’s share of the grocery market was 18%, Numerator reports.

In January, Amazon tapped Jason Buechel, the CEO of Whole Foods Market, to lead its grocery store business. Buechel announced in June that the company was bringing Whole Foods closer to the Amazon grocery umbrella as part of a reorganization and investing $4 billion to triple the size of its delivery network by 2026, with a focus on small towns and rural communities.

WALMART HEAD START
Retail analysts at Mizuho said the Amazon announcement represents a head-to-head competition with Walmart.

“In our view, Amazon is advancing grocery and rural investments whereas Walmart continues to build up its marketplace and advertising verticals,” the Mizuho note states.

Walmart’s membership program was launched in 2020 and costs $12.99 per month or $98 annually. The Amazon Prime membership costs $14.99 monthly or $139 annually. Walmart+ subscribers can get free online grocery delivery the same day with orders over $35 or $6.99 for orders below that level.

Guy Adami, director of advisor advocacy at Private Advisor Group and CNBC contributor, said he expects Walmart to hold its own given its head start in grocery and lion’s share of the online grocery business to date.

“I would stick with Walmart,” Adami said. “They know grocery well and have been able to build out a profitable pickup and delivery business like none other.”

Still, there were some analysts who said Walmart could be challenged given the scope of the Amazon Prime membership and the prospect of free grocery delivery and same-day delivery in hundreds of cities.

Jason Goldberg, chief commerce strategy officer at Publicis Groupe, said Amazon has struggled to succeed in fresh food, and shoppers have been confused ordering shelf-stable items and perishables and having them appear in different online shopping carts, including Amazon Fresh. He said this move will improve the experience.

Amazon already has a large consumables business generating more than $100 billion in gross sales of groceries and household essentials last year, excluding Whole Foods Market and Amazon Fresh. For comparison, Walmart’s grocery business totaled $276 billion in net sales last year, or nearly 60% of Walmart U.S. total net sales of $462 billion. The grocery business saw a 4% increase compared to the previous fiscal year and an 11% increase compared to fiscal year 2023.

Brian Mulberry, portfolio manager at Zacks Investment Management, said the new Amazon offer is likely to increase Prime membership, but ensuring that the service is high-quality will be critical for growth. Chedly Louis, a vice president of corporate finance at Moody’s, said that Amazon’s acceleration into perishable food delivery could hurt smaller, independent grocers more than Walmart.

Editor’s note: The Supply Side section^[1] of Talk Business & Politics focuses on the companies, organizations, issues and individuals engaged in providing products and services to retailers. The Supply Side is managed by Talk Business & Politics, and is sponsored by HRG^[2].

Related