The Supply Side: More consumers moving to Walmart for grocery

Walmart is the largest grocery chain in the U.S., with food and consumables comprising roughly 60% of sales, and pharmacy/health and wellness making up 13.5% of the retailer’s U.S. revenue, according to equity analysts at Jefferies.

In its recent fourth-quarter results, grocery sales for Walmart U.S. were an estimated $77.5 billion. Health and wellness sales, including pharmacy, totaled an estimated $17.4 billion in revenue during the quarter.

Analysts expect Walmart to continue to gain market share in grocery and consumables even with expansions of other discount chains like Aldi and dollar stores, which are growing their market reach as consumers continue to seek lower prices.

According to a recent dunnhumby report, Walmart’s grocery penetration reached a record 72% as more consumers in all income brackets chase lower grocery prices. Walmart’s customer penetration rose 6% over the past year. The report found that despite a slight decline in inflation, consumers are still focused on prices, and the search for affordable groceries shapes shopping behaviors.

Financial insecurity among Americans between the ages of 18 and 54 helped fuel Walmart’s growth. Walmart execs recently said consumers earning less than $50,000 annually are shopping more often, spending less, with shopping cycles tied more to paycheck cycles.

The dunnhumby report shows 76% of working-age Americans would struggle to cover an unexpected $400 expense. Among those earning less than $50,000, 71% would struggle to cover the expense. The percentage drops to 48% for those making $50,000 to $100,000, and down to 36% for those earning more than $100,000.

“We are seeing that U.S. households are realigning where they shop based on affordability,” said Matt O’Grady, president of the Americas for dunnhumby. “What makes this different from the 2023 inflation spike is that consumer concern persists even as actual inflation moderates. The consumer is just not feeling it. Where they shop, how they use coupons, even how they adopt AI — everything aligns to saving money. When financial insecurity becomes this entrenched, grocery affordability becomes paramount, and shopping behavior doesn’t just snap back.”

Dollar stores also increased penetration rates, overtaking wholesale clubs like Sam’s Club and Costco in dunnhumby’s report. The dollar store segment reached 42% of the U.S. population in the December report. Individually, Dollar General achieved a customer penetration rate of 29%, up from 23%, and second only to Walmart. Dollar Tree increased its customer penetration rate to 25%, up 4% from a year ago.

The dunnhumby report shows Aldi’s penetration rate increased to 28%, up from 26% a year ago. Aldi plans to open about 180 new stores in 31 states this year while also adding new distribution centers in Arizona, Colorado and Florida. The discounter has lagged some competitors with its online grocery reach, but the company plans to launch a redesigned website later this year aimed at making online shopping easier and more personalized.

A new consumer report from Ibotta found that shopper behaviors that started during the pandemic have become the “new normal.” The pre-trip grocery list has long been a ritual for the vast majority of shoppers. However, Ibotta reports that its importance is waning.

“While 68% of consumers still make some sort of list before hitting the grocery store, that number is down from 75% in 2023,” the report noted. “This shift is not a sign of indifference but rather a strategic evolution that allows consumers to be more nimble and value-centric in their purchase decisions.”

Ibotta reports 32% of shoppers enter the store with only a loose idea or no plan at all, up from 25% in 2023. The flexibility allows consumers to change from a specific brand or product to capitalize on immediate value opportunities, Ibotta noted.

Consumers are relying more on in-store sales promotions to make buying decisions. Walmart U.S. recently reported 6,200 price rollbacks implemented in its fourth quarter, a 23% increase from the same quarter in the previous year. Walmart began its fiscal 2027 with roughly 7,200 rollbacks, with over half of them in grocery, according to CEO John Furner.

Ibotta reports that 64% of consumers use digital coupons and cash-back options to save money on food and consumables. The report indicates that switching stores or brands and seeking out deals have become more routine. Grocery costs remain a concern for 67% of survey respondents, who said inflation hurts household finances. A price-first focus results in more private-label purchases, as perceptions of quality close the quality gap with national brands.

“This defensive playbook manifests in two key ways: a shift toward value-focused retailers like Walmart and Dollar General and a growing de-prioritization of brand names,” Ibotta reported.

Ibotta found 18% of shoppers are open to switching brands of trash bags for a 10% lower price, and 58% of shoppers will switch a health and beauty brand for a 10% to 25% price discount. With categories that have seen some of the highest inflation, like salty snacks, 62% of shoppers said they would switch brands of potato chips for a 25% savings. Brand loyalty remains high around non-alcoholic beverages like soda. Still, 52% said they would switch brands for a 25% discount, and it would take a 50% cost savings for 24% of shoppers to make a switch.

Editor’s note: The Supply Side section of Talk Business & Politics focuses on the companies, organizations, issues and individuals engaged in providing products and services to retailers. The Supply Side is managed by Talk Business & Politics.