Supermarkets face pressure to adapt as Walmart grabs 37% of the eGrocery Market in Q2 2024

As Walmart continues to grab more online grocery market share, Supermarkets contend with how to compete.

Walmart’s strategic shift toward Delivery, which recently offered a range of services, including in-Home, and promoted deep discounts on the Walmart+ annual membership, has strengthened the value proposition for its Delivery services. 

It’s also worth remembering that Walmart customers can shop for non-grocery items, like clothing, which Supermarkets typically don’t sell. As a result, Supermarket operators need to evaluate the value proposition for their online shopping services in addition to the technologies and strategies that support and drive key activities.

Walmart’s Rise in the eGrocery Market

In Q2 2024, Walmart achieved a record 37% share of the U.S. online grocery market, according to the latest U.S. eGrocery Market Share Report powered by data from the Brick Meets Click/Mercatus Grocery Shopping Survey. This 150-basis point (bps) increase from the previous year, which followed a 520-bps year-over-year gain in 2Q23, highlights Walmart's ability to attract price-sensitive shoppers amid economic pressures.

Walmart’s reputation for low prices helped to attract households that wanted both the convenience of shopping online and ways to save money in this market. And the fact that some customers may see the value of buying general merchandise in addition to groceries is another component of its customer value proposition (CVP) that Supermarkets don’t offer.

The execution of its omnichannel strategy, plus the operational efficiencies aided by incredibly high order demand, has enabled Walmart to consistently deliver the type of experiences that customers expect and to lower the retailer’s cost to serve online orders.

Economic Conditions Drive Walmart’s Gains

Walmart's strong performance is partially linked to economic conditions, including rising inflation and interest rates. As more households face declining personal savings and growing credit card balances, Walmart's low prices and omnichannel strategy have become increasingly appealing to those trying to balance tradeoffs between convenience and cost. 

Supermarkets Must Adapt to Market Shifts

As Walmart's eGrocery market share has expanded, Supermarkets saw a decline of 250 basis points, ending Q2 2024 with a 27.3% share. This downward trend, which began in early 2022 following the expiration of the expanded child tax credit and rising living costs, indicates the need for supermarkets to reassess and adjust their strategies. To retain their customer base and stay competitive, supermarkets must adapt to these evolving market conditions.

Target Shows Steady Progress in eGrocery Market

Target achieved steady growth in the e-grocery sector, capturing a 7% market share in Q2 2024, an increase of 120 basis points since Q2 2021. A strategic focus on competitive pricing and efficient Pickup order fulfillment has enabled Target to establish a strong position between Walmart and traditional supermarkets, demonstrating its effective approach to capturing market share.

Delivery vs. Pickup: Market Dynamics

Walmart's emphasis over the last year or so on first-party delivery has reshaped the market dynamics between Mass retailers and Supermarkets. In Q2 2024, Mass retailers captured nearly half of all Delivery sales, a notable increase from the previous year, while Supermarkets lagged behind by almost ten percentage points. 

In the Pickup segment, Mass retailers maintained a strong lead with nearly 58% of sales, compared to Supermarkets’ 28%. Although Pickup remains the preferred method for eGrocery transactions in the U.S., its share has slightly declined by 110 basis points from Q2 2023.

Order Mix Trends: Supermarkets Shift Toward Pickup

Supermarkets have increasingly leaned towards Pickup services. Their share of Pickup orders has grown by 700 basis points since Q2 2021, reaching 47.5% in Q2 2024. Meanwhile, Mass retailers still fulfill most of their orders (51.8%) through Pickup, though there is a noticeable shift towards Delivery, spurred by Walmart's focus on its first-party service.

Customer Loyalty and Cross-Shopping Trends

The competition in the retail sector is heating up, as more Supermarket customers are also turning to Mass retailers. In Q2 2024, over 32% of Supermarket shoppers made purchases from Mass retailers, with Walmart attracting one in five of these cross-shoppers. This trend is especially notable among middle-income groups ($50-$99K and $100-$199K), underscoring the need for supermarkets to refine their strategies to retain these valuable customers.

What Supermarket Operators Need to Consider

To better compete with Walmart’s low-price appeal, Supermarkets need to evaluate and potentially adjust their CVP. This may involve revising pricing strategies, offering more competitive discounts, and enhancing the perceived value of their online and in-store services to attract price-sensitive customers.  

Mark Fairhurst, Chief Growth Officer at Mercatus, recommends boosting loyalty through points, discounts, and exclusive deals, highlighting unique products, and using targeted promotional campaigns to encourage repeat purchases. This may also include investing in technology, segmenting your customer base, and introducing new service options that play on your proximity to households.  

About the Report

Supermarkets can gain valuable insights from the U.S. eGrocery Market Share Report - 2Q24, developed by Brick Meets Click and sponsored by Mercatus. This report offers an in-depth analysis of shifting e-grocery trends and consumer behaviors over the past three years, helping Supermarkets make more informed decisions based on a broader view of this segment of grocery retailing.