Walmart touts fresh food, store brands as growth drivers in 3Q

Walmart's private brands sales had increased penetration in the third quarter.

Momentum continues to build at Walmart where the retailer’s U.S. business reported a 3.2% third-quarter sales gain thanks to market share gains in fresh food, e-commerce growth and increased traffic to physical stores.

There wasn’t much that didn’t go right for Walmart’s U.S. business in the period ended Oct. 31. Total sales increased 3.2% to $83.2 billion and operating income increased 6.1% to $4.2 billion. The sales growth was driven by strength across most key categories and channels with the performance of grocery highlighted as a key driver by Walmart Chief Financial Officer Brett Biggs.

“Fresh food was particularly strong this quarter with mid-single digit comp sales growth as improvements in areas like bakery and meats are resonating with customers,” Biggs said. “We’ve focused on improving fresh presentation and product quality and this has resulted in stronger sales and market share gains according to Nielsen. Private brand sales continue to be strong with increased penetration versus last year.”

Biggs did not provide a private brand sales penetration rate as tends to be the case with some other major grocers. He did say that continued price investments pressured gross profit, but were partially offset by lower supply chain costs and better merchandise mix, including strength in private brands. 

Walmart’s strength in grocery is intertwined with e-commerce, which grew a reported 41% during the quarter, because it counts online orders fulfilled by stores as digital sales. Walmart now offers free same-day grocery pickup from more than 3,100 stores and by year end expects to provide same-day grocery delivery from more than 1,600 locations. It also recently launched a grocery fulfillment program branded as Delivery Unlimited.

“During the quarter, we took convenience to a whole new level with the launch of the In-Home Delivery pilot. Now, more than 1 million U.S. customers in three markets (Pittsburgh, Kansas City, Mo., Vero Beach, Fla.) can have their online grocery orders placed all the way into their refrigerators,” Biggs said. “We think this could be a winning proposition as we expand our relationship with more families and grow our share of wallet.”

While many things went right for Walmart in the third quarter, Walmart Inc. President and CEO Doug McMillon highlighted opportunities for further improvement in the e-commerce area.

“Our strength is being driven by food, which is good, but we need even more progress on with general merchandise,” McMillon said. “We’re committed to progress and building a larger, healthier e-commerce business. Our customers want that, our marketplace sellers want that, and so do we.”

McMillon continued to describe what has been a familiar challenge at Walmart ever since it became a major force in food retailing. Namely, to get customers who are buying groceries to shop other categories with higher margins.

“Grocery pickup and delivery, along with new offerings like Unlimited Delivery and InHome Delivery, will help us unlock advantages we have to serve customers in a way that reduces friction and enhances convenience. We need to translate this repetitive food and consumable volume into a stronger business that’s profitable over time, so that’s what we’re working on,” McMillon said.

Beyond grocery, McMillon dropped a hint about the next major sector of the U.S. economy where the retailer is eyeing disruption. The retailer opened a Walmart Health center in Dallas, Ga., that serves as a venue for providing basic healthcare services ranging from primary care, dental and lab work with transparent pricing, something the health care industry isn’t known for.

“I’m pleased with what we’re seeing so far at this first location. We’re opening a second location soon, and I know we’ll continue to learn as we open several more and design the ideal model to provide customers with better and unique solutions for their everyday healthcare needs,” McMillon said.

Sam's Club grew comp sales 0.6 percent, excluding fuel, and 4.1 percent when excluding fuel and tobacco in the third quarter.

McMillon singled out the private branded Member’s Mark line as a strong performer in the third quarter. In April 2017, Sam’s Club announced the 20-year-old line’s revitalization, which touched about 1,200 products at the time and continues. Sam’s Club decided to streamline 21 previous Sam’s Club private brands including Simply Right, Bakers & Chefs and Daily Chef into Member’s Mark, a brand the warehouse club chain touted as having strong equity.

"We’re doing well with private brands [at Sam's Club], where we’ve enjoyed benefits from great product and a single brand — Members Mark,” McMillon said.

Mike Troy is editorial director for EnsembleIQ's Grocery Group.