Online grocery is booming as people look for ways to practice social distancing and avoid long waits at the grocery store. Sales volume tripled year over year in March, according to two separate reports from Rakuten Intelligence and NetElixir. NetElixir expects sales to increase 2.5 times year over year in April as the U.S. continues to stay at home.

Importantly, online grocery shoppers could become habituated, leading to a permanent increase in online grocery shopping. Even if e-commerce penetration of grocery retail improves by 2 percentage points this year, that's $20 billion in revenue up for grabs, as eMarketer points out. While eMarketer hasn't updated its forecast for online grocery sales, a $20 billion increase is not out of the question.

A shopping cart in a grocery store

Image source: Getty Images.

Who's winning those sales?

Two big winners have emerged in online grocery: Walmart (NYSE:WMT) and Amazon (NASDAQ:AMZN).

Walmart's winning over half of all new online grocery shoppers. Its click-and-collect model, where customers can pick up their orders curbside at over 3,000 Walmart locations, makes it extremely convenient for most Americans. It also offers same-day delivery, covering more than 50% of the United States. Walmart charges $10 per delivery, or offers unlimited deliveries for $98 per year.

Meanwhile, Amazon Prime members may be more likely to opt for Amazon's Prime Now or AmazonFresh services; both allow customers to schedule deliveries, usually on the same day they place their orders. (However, during the pandemic, finding a delivery window has proven difficult for many customers.) There's no additional fee for Prime members. About 14% of new online grocery shoppers opted for Amazon last month, according to a survey from Gordon Haskett Research Advisors.

Don't forget about cannibalization

It's important to consider Walmart's massive share of physical grocery retail, though. If physical grocery loses $20 billion in sales to online channels (and all of those losses are proportional to existing market share), Walmart will lose about $5.2 billion worth of sales in its stores. So, if it wins half of online sales, its net sales increase would be $4.8 billion.

Amazon's Whole Foods only has a 1.6% share of grocery sales in the U.S. So, it might lose $320 million in exchange for Amazon's $2.8 billion incremental increase in online grocery sales. That nets out to about $2.5 billion in incremental sales for the e-commerce leader.

Walmart is still seeing a huge benefit from the shift to online grocery shopping, but it's not quite as big as gross online sales might suggest. Meanwhile, Amazon's paltry physical retail market share means the shift produces a huge amount of net incremental revenue.

Walmart's massive share of new shoppers, compared to Amazon, may be due to its widespread availability. Amazon is working to expand its grocery delivery service, and it's possible consumers will switch to Amazon from Walmart if they get free delivery with their Prime membership. Walmart's hoping for the opposite: that it can convince consumers to sign up for its $98 per year Delivery Unlimited membership and then drop Prime. That seems unlikely.

For now, both companies should see billions of dollars in incremental revenue growth this year, as customers get used to shopping for their groceries online. As shoppers get into the habit and appreciate the convenience of online grocery shopping, it'll be hard for things to go back to normal, even once the threat of the pandemic has lifted.

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