It remains unclear if online grocery will help Walmart’s online division be profitable

by Kim Souza ([email protected]) 2,486 views 

Walmart U.S. employees work to fill orders placed online for store pickup. continues to ring up large losses, which insiders project will be $1 billion this fiscal year. Though Walmart does not break out its online sales, the retailer has said it is taking longer than planned for the division to be profitable even with the billions already invested.

The Bentonville-based behemoth is betting big on Walmart online grocery to help level the playing field against Amazon. The company is aggressively rolling out the online grocery pickup services to more than 3,600 stores this year. The service is available in 3,100 of the retailer’s 4,500 U.S. stores and home delivery is possible from 1,600 store locations.

Walmart CEO Doug McMillon told attendees at Fortune’s Brainstorm Tech conference earlier this week that Walmart stores are the answer to Amazon when it comes to groceries.

“One of the realities of fresh and perishable food is if you don’t sell it, you throw it away or give it away,” McMillon said during his Fortune interview that was streamed online. “When you have a store environment and you have fresh or perishable food so close to people, those stores then become dual store and pick centers.”

Supply chain analyst Annibal Sodero, a professor on the topic at Ohio State University, told Talk Business & Politics that if Walmart wants online grocery to be a final answer to Amazon, it’s likely going to be disappointed. He said the growth of Walmart online grocery will be capped at some point as competitors like HEB in the South and Kroger in the Midwest already offer similar programs in markets they dominate. He said two years from now when all the Walmart stores have had online grocery the growth will likely slow as all of its grocery competitors will be offering the same thing.

Ken Cassar, vice president of research for Shoptalk, has said a reason’s sales are growing is related to online grocery pickup. Until Walmart blends the general merchandise site with the grocery site and allows consumers to shop one site for all their needs, the offerings and service are not as streamlined as it could be.

Marc Lore, CEO of Walmart U.S. eCommerce, told Talk Business & Politics the company is working on integrating the two sites. He expects it will be completed by the end of this year. But having that service available is just part of the challenge, as other Walmart executives have said having employees pick general merchandise items like apparel from a store is far more cumbersome than picking a grocery list.

It’s the general merchandise items that have the higher margins and have been much of the success of the Walmart supercenter concept, according to Andy Wilson, a retired Walmart executive who recently toured a local supercenter with Talk Business & Politics.

RetailWire recently asked market s in a blog post whether Walmart’s success or failure in grocery pickup will impact the rest of its challenged online business. The sentiment was mixed regarding Walmart’s big bet on grocery.

Ananda Chakravarty, director of retail omnichannel solutions at Oracle, said, “Grocery won’t drive online – at least not yet. Online grocery is a tiny part of the market, less than 5%, and Walmart may be able to surpass Amazon here but it will move along at the same or slower pace of growth as overall e-commerce. For a variety of reasons, the logistics for grocery are more challenging – including managing cold chain, waste, and regulation to name a few. For Walmart, who has this infrastructure in place already, it does give them a step ahead – but for a tiny online grocery presence that’s not moving exponentially, it won’t be a kingmaker for Walmart.”

Lee Peterson, of WD Partners, said if Jeff Bezos had a bullseye on his strategy board, it would likely be Walmart grocery. He said the $254 billion business is the world’s biggest and Walmart is doing a good job protecting its share thus far. He said home delivery, quality upgrades and online pickup are the tools Walmart needs to fight the 900-pound gorilla. Peterson warns Amazon has won every game it’s played and when it hasn’t it manages to bail out quickly. Peterson said Bezos is not likely to soon back off in competing against Walmart grocery.

Cynthia Holcomb, CEO of Prefeye, a digital technology company serving retail, said if grocery is considered Walmart’s online competitive advantage, then Walmart’s fortunes seem bleak.

“ carries millions and millions of product SKUs beyond grocery, most with higher profit margins than a loaf of bread. If grocery is the key to beating Amazon, Walmart needs to come up with a better reason for consumers to buy groceries at Consumers don’t care how many Walmart stores offer grocery pickup, beyond their store. Consumers care about the quality of the groceries they purchase for their family, on or offline. If Walmart is banking on groceries to beat Amazon, Walmart needs to up its game,” Holcomb noted on the blog post.

Ken Morris, a principal at Boston Retail Partners, said Walmart has the physical footprint advantage over Amazon, but Walmart needs to find additional ways to enhance its customer experiences in-stores and online.

“Grocery is a great place to focus as it caters to the core customer and leverages the customer relationship. But, to succeed, Walmart needs to continue to improve and enhance its grocery quality and assortment to ensure customers return. Walmart should continue to focus on its online and in-store grocery business as that is a core strength for the company and leverages its current customer base,” Morris noted in the blog.

Walmart U.S CEO Greg Foran has said many times the future has to be “one Walmart,” because consumers don’t understand the metrics behind online and in-store and how the businesses are different. He has also has said he likes Walmart’s chances to get this right given its global footprint in grocery and the investment it’s making in technology.