Mercatus: How Walmart Dominates E-Commerce
New research from Mercatus details how Walmart is continuing to challenge the e-commerce businesses of regional grocers.
According to the eGrocery-focused firm, Walmart’s prices are an average of 15% lower online compared to other grocers based on a large basket of groceries in the U.S. Walmart relies very little on service fees to support the cost of pickup operations, and it generates over eight-times more net revenue from retail media per online order compared to some regional grocers. Mercatus said Walmart’s retail media earnings are projected to climb at least 20% annually while automation will lower its cost to fulfill online grocery orders even further.
Last year, Mercatus found that most customers shop with a regional grocer because it is “conveniently located,” and this year Mercatus found more information on what that means. Four in 10 customers who say a regional is their primary grocery store indicated that it is the closest store to home. In contrast, nearly half of those who say Walmart is their primary grocery store drive past two or more rival stores to shop at the mass discounter, enticed by lower prices and a wider selection.
A desired “convenient location” also applies to online shoppers who receive their orders via pickup since this requires a trip to the store. The difference between regional grocers and Walmart reveals the implied trade-off between cost and convenience that customers make when selecting where to shop.
“A key takeaway of this research initiative is that regional grocers need to consider pursuing a different path forward for online pricing because they typically have less ability to cover the incremental costs of these value-added services than Walmart,” said Sylvain Perrier, president and CEO of Mercatus. “We recognize that grocers may view pricing as a third-rail topic, but the rationale and evidence for adopting a new online pricing paradigm continues to strengthen, and we want to help grocers navigate how they adapt to these competitive realities.”
Mercatus offers regional and independent grocers possible solutions for competing with Walmart’s e-commerce. Mercatus says that grocers can benefit from leveraging a variable fee structure that flexes up or down based on when the customer wants to receive the online order. This approach empowers the customer to choose whether “speed” or “fee” is more important to them relative to that specific order, and creates more opportunities for the retailer to realize labor savings by batching together orders during the pick and pack operation.
“Regional grocers are well positioned to help their customers save time, and they can also offer customers additional ways to save money based on how they want to shop,” said David Bishop, partner at Brick Meets Click, a partner of Mercatus. “Strategies like having lower prices compared to third-party marketplaces, price protecting ad items, offering digital coupons, and offering graduated fees based on pickup times are all ways grocers can help their customers save money when shopping online.”