Wal-Mart's big investments put it in fighting shape for the grocery wars

Key Points
  • AmazonFresh, Target, Aldi and Lidl, among others, all want a larger slice of the grocery market and are trying to drive customers to shop both in stores and online.
  • "Online grocery ... continues to perform well," Wal-Mart CEO Doug McMillon said Thursday.
  • The big-box retailer's "Everyday Low Price" strategy has been particularly appealing to shoppers, and its free-shipping push is showing signs of paying off.
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Source: Walmart

Competition in the supermarket business is only intensifying.

Amazon's AmazonFresh initiative is rolling out brick-and-mortar pick up locations, Target has tapped a Kroger executive to run its grocery division, and discount chains Aldi and Lidl are encroaching on U.S. market share.

Everybody wants a piece of the pie, literally.

But Wal-Mart's investments are putting the retailer in a good place, as its first-quarter results show, while it pours money into keeping its prices low and beefing up its digital operations.

Wal-Mart's grocery business saw its food categories deliver their strongest quarterly comparable sales performance in more than three years, Wal-Mart CEO Doug McMillon told analysts and investors Thursday.

"Online grocery also continues to perform well, and we're on track to scale the [grocery] offering to more stores this year in several countries, including the U.S.," McMillon went on.

By acquiring last year and bringing the website's founder, Marc Lore, on board to spearhead Wal-Mart's e-commerce division, the traditionally brick-and-mortar retailer has made clear its plans to move from bricks to clicks, as analysts say.

And Wal-Mart wants to make sure its grocery offering is particularly appealing to shoppers online.

Wal-Mart posts mixed Q1 results
Wal-Mart posts mixed Q1 results now boasts 50 million SKUs, and growing, Lore said on a call with journalists, adding that Wal-Mart is very pleased with its growing assortment of food and essentials online. This is up from 35 million items during the previous quarter.

"Looking in more detail at the various strands of Walmart's initiatives, a sharper focus on price is cutting through — especially on grocery," GloablData Retail Managing Director Neil Saunders wrote in an email.

By pursuing its "Everyday Low Price" strategy, Wal-Mart is likely winning over customers who used to shop for food at dollar stores — think Dollar Tree and Dollar General — and mainstream grocers, Saunders said.

"The response to Walmart flexing its price muscles has been good, and we expect further small gains over the rest of this year. A more disciplined focus on low prices is also important as Aldi, and now Lidl, expand into the market," Saunders said, citing data that suggests Wal-Mart is unlikely to need to respond much more aggressively on price than it already has.

Lidl, a German discount grocer, announced Wednesday that its first 20 U.S. stores would open June 15 in the Carolinas and Virginia, with another 80 slated to open within the year. Lidl is known for low prices and its emphasis on store brands.

Wal-Mart didn't offer much more guidance Thursday regarding the breakdown of its online sales for the latest quarter, which surged a staggering 63 percent and added 0.8 percentage points to its first-quarter same-store sales gain.

Lore said the results were driven higher largely by's free two-day shipping offering and higher repeat orders.

Wal-Mart recently rolled out an "Easy Reorder" feature that makes it simple for shoppers to restock foods like Kraft Mac & Cheese and General Mills' Honey Nut Cheerios, or other items they would buy frequently.

Amazon Dash is a similar concept, where customers can restock products by brands like Tide, Glade or Gatorade, with the push of a button.

Meanwhile, Target is trying to stay competitive by stealing Jeff Burt from Kroger to lead its food and beverage business, as comparable sales lag in this division. Last year, Target walked away from an acquisition of Phoenix-based grocery chain Sprouts Farmers Market and instead has shifted resources toward launching its own private-label brands.

"While share loss online and to specifically is inevitable and likely to become more pronounced in time, Walmart has an effective omni-channel approach in place to better compete than peers," Mark Astrachan, an analyst at Stifel, said in a research note.

Wal-Mart shares hit a 52-week high on Thursday, following the retailer's quarterly financial report.

Read: Wal-Mart reports first-quarter earnings