Please ensure Javascript is enabled for purposes of website accessibility

If Online Grocery Shopping Is the Reason You Own Walmart, Don't Bother

By James Brumley – Jul 30, 2021 at 7:16AM

Key Points

  • The total number of consumers shopping for groceries online continues to fall.
  • The slowdown comes as many grocers make big investments to sustain grocery e-commerce growth.
  • Online food shopping never really became a meaningful customer attraction and attention tool.

Motley Fool Issues Rare “All In” Buy Alert

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Despite high hopes for the idea, consumers are surprisingly disinterested in continuing to buy their food using internet apps.

Online grocery shopping was supposed to be a key aspect of the industry's future. The COVID-19 pandemic was also supposed to finalize its arrival, with new online grocery shoppers opting to stick with the simplified shopping solution. Ergo, the grocers that did it best were supposed to leverage their online grocery shopping offer to win over new customers.

But none of this is panning out as expected.

That's the takeaway from market research outfit Brick Meets Click's latest look at the matter, which notes that in June, the nation's web-based grocery spending fell for a third straight month.

Given this backdrop, if its online grocery presence is the only reason you own stock in grocery market-leader Walmart (WMT 0.43%), you might want to reconsider your investment.

Delivery driver bringing grocery order from a van to a consumer's door.

Image source: Getty Images.

Failure to launch

It's not a disastrous drop, for the record. The survey performed by Brick Meets Click and Mercatus indicates U.S. consumers bought $6.8 billion worth of groceries via the internet last month. That's only down a couple hundred million bucks from May's $7 billion.

Yet it caps off a six-month slowing streak that leaves the digital sliver of the grocery business well off the bold estimates tendered within the past year.

eMarketer estimated early this year that U.S. consumers will spend nearly $113 billion on online grocery shopping this year, en route to $188 billion by 2024. Another survey performed by Mercatus and Incisiv late last year indicated that -- thanks to the pandemic -- online grocery shopping would account for roughly 12.5% of the country's $1 trillion grocery market this year. That survey also implied that online groceries would grow to represent more than 21% of what would be nearly a $1.2 trillion grocery market by 2025. That's $133 billion worth of online grocery sales now, and $250 billion by 2025.

Through the first six months of this year, however, the nation's online grocery revenue stands at a modest $48.8 billion, and it is clearly falling from March's peak. That's when the contagion itself was still going pretty strong and before coronavirus vaccines began to be distributed in large numbers.

The nation's interest in online grocery shopping is steadily sinking as the pandemic is curbed.

Data source: Brick Meets Click. Chart by author. Numbers are in billions.

The total figure of monthly users of such services is sinking, too, rolling in at 63.5 million in June, down 12% from last June's 72 million, and down from May's figure of 66.8 million. Perhaps most alarming is how June's online grocery spending of $6.8 billion is the second-lowest monthly figure seen since the contagion took hold. That's almost even with the figure of $6.5 billion from March of last year, before COVID-19 had swept across the country, and before grocers were ready to deal with the surge in demand.

Simply put, consumers said they'd make shopping for groceries online their new normal. Most of them seem to have changed their mind.

Misplaced bets

Of all the names that have something to lose from this revolution's slowdown, by virtue of its grocery market leadership, Walmart has the most.

The company has credited most of the past year's double-digit percentage e-commerce growth to grocery demand, and now that key growth driver is coming to a screeching halt. The retailer has already earmarked $14 billion for capital expenditures this fiscal year -- well above the norm -- largely for investments meant to secure its spot as consumers' go-to online shopping destination. Among the areas the company plans to improve is fulfillment capacity, automation, and "enhancing pickup and delivery capacity." All told, the world's biggest retailer is preparing to do $100 billion worth of annual online sales within the next two years, and CFO Brett Biggs suggests $200 billion worth of yearly e-commerce is an eventual possibility.

To the extent groceries were to be a key growth driver toward that goal, now they're not.

It's not just Walmart's online grocery business that could disappoint as better-focused investments in the idea are being planned, either. At this year's virtual investor day conference held in March, Kroger (KR 2.51%) chief information officer Yael Cosset noted the grocer doubled its online sales to $10 billion in 2020, but he added the company expects to double that figure again by 2023. Albertsons Companies (ACI 1.12%) recently expanded its grocery delivery partnership with Uber Technologies, more than doubling the service's reach to 400 U.S. cities. Even Costco Wholesale (COST -0.15%), which has largely eschewed online grocery sales, is increasingly embracing the idea. Just a few days ago, it also launched a home-delivery pilot with Uber, offering same-day delivery to certain markets in Texas. That deal follows similar ones the retailer has inked with Instacart and Shipt.

While most of these partnerships started small in scale (and cost), most were entered into on the assumption that online grocery shopping would be a major growth driver. That's just not the case though -- at least not yet.

Not the end of the world, but...

Don't misread the message. Walmart's existence isn't at stake. Despite years of strong online sales growth, eMarketer estimates its e-commerce revenue will reach around $65 billion this year. That's only a little more than a tenth of its typical annual business, and not all of that business is groceries. Other grocers are still doing similarly minimal business online despite the pandemic forcing retailers to accelerate their respective journeys down the research and development curve.

This minimal level of impact, however, is the troubling point. If you were counting on online grocery shopping to be a game-changing growth engine for Walmart or any of its peers, that's looking less and less likely.

James Brumley has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Costco Wholesale. The Motley Fool recommends Uber Technologies. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Walmart Inc. Stock Quote
Walmart Inc.
$153.07 (0.43%) $0.65
Costco Wholesale Stock Quote
Costco Wholesale
$533.66 (-0.15%) $0.83
Kroger Stock Quote
$49.04 (2.51%) $1.20
Albertsons Companies, Inc. Stock Quote
Albertsons Companies, Inc.
$20.67 (1.12%) $0.23

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 11/26/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.