Earlier this month, Walmart executives presented at a pair of industry conferences. Given the retailer’s massive reach and the uncertainty in the economic environment, stakeholders asked each about the general state of the consumer. Both gave similar answers.
At an Oppenheimer & Co. conference on June 9, Walmart Inc. CFO John David Rainey said that consumer behavior has been “consistent with what we’ve seen in prior quarters.” Two days later, at a forum run by investment bank Evercore, Todd Sears, the CFO of the Sam’s Club division, too used the word “consistent,” and elaborated: “The consumer is still being very conscious and very choiceful about what they’re purchasing … the last eight-plus quarters, the behavior has been pretty much the exact same.”
Whether or not the use of “consistent” by both executives is intentional, it’s certainly logical. Since the spike in inflation in 2022, leaders across multiple industries have used terms like “value-seeking” to describe how consumers are behaving. Those consumers are still buying, certainly, as both overall macroeconomic numbers and results from consumer-facing businesses confirm, but there are modest changes in how they are buying.
On Walmart’s first quarter earnings call in May, for instance, Rainey noted a multi-year shift toward necessities and away from discretionary spending. More recently, both the news (notably around tariffs) and the weather have affected U.S. shoppers: after Q1, Walmart noted a particularly weak February followed by a recovery, which was the exact same pattern cited by the major restaurant distributors in their own earnings reports.
In terms of market share, particularly in grocery, this focus on value would seem to be good news for Walmart. No rival can consistently compete on price. Unsurprisingly, quarter after quarter Walmart has maintained that it is taking share in grocery.
Convenience is King
There was another shared message across the two conferences that should even be more concerning for Walmart’s rivals.
While consumers are being cautious, they clearly remain willing to pay for convenience. Rainey noted that the number of orders delivered in under three hours (for which consumers pay a higher price) had nearly doubled in a year. At Sam’s Club, Sears said the number of deliveries increased 160% year-over-year in the first quarter. The club chain has started delivering pizzas to take advantage – and the average order size for those deliveries is ten times the cost of the pizza, as customers add on to the basket.
As with the macro environment, the trend Walmart sees is echoed in adjacent industries. For instance, third-party delivery companies like Instacart and DoorDash are doing exceptionally well even as consumers purportedly tighten their belts. The combination of consumers tightening their belts while also paying up for convenience seems contradictory, but appears to be real.
The concern for rivals is that in convenience, too, other retailers will struggle to compete. Walmart’s density in the U.S. is staggering: Rainey noted at an investor event in April that the company now serves 93% of the U.S. population with same-day delivery. It can run those deliveries through its own supply chain, which is deeper and wider than those of any other rival. Its driver network, Walmart Spark, appears to have reached critical mass, meaning that Instacart and DoorDash won’t necessarily have an edge in terms of speed or cost.
Subscription Growth Fuels Retail Giant
Meanwhile, the Walmart+ subscription program is growing double-digits, and can allow the company to take further share of overall spend from its customers. To top it off, Walmart Connect, the company’s advertising business, is increasing its revenue at a 30%-plus clip.
These efforts will help Walmart’s profits, but will also further improve its competitiveness.
Management has said repeatedly that it’s not interested in just moving its profit margins higher, but in increasing overall profits. That in turn means that some of the high-margin dollars from subscriptions and ads are going back into the business; given Walmart’s history and strategy, most of that investment probably is in price. (Executives also have talked up improving assortment in grocery.)
To be fair, this doesn’t necessarily mean that Walmart is on its way toward dominant share in the grocery space, in particular. Investors certainly aren’t pricing in that outcome: while Walmart stock is up 41% over the past year, Kroger shares have gained 30%, Sprouts Farmers Market has more than doubled, and Natural Grocers by Vitamin Cottage has soared 98%.
But what the market does seem to be saying is that any Walmart competitor needs to have clear differentiation and excellent execution. After all, Albertsons stock has lagged (it’s up 5%) and Target stock has lost more than 30% of its value. Smaller grocery names like Weis Markets (+18%) and Ingles Markets (-10%) too have lagged. Investors clearly believe that, at the very least, those competing with Walmart have little or no room for error.
Given how well the giant is performing, and how many advantages it already has, even that sense may prove to be too optimistic.
Vince Martin is an analyst and author whose work has appeared on multiple financial industry websites for more than a decade; he’s currently the lead writer for Wall Street & Main. He has no positions in any companies mentioned.
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