Walmart, Target and Kroger compete in grocery delivery

And Kroger said Thursday that home delivery helped drive more than 10% year-over-year growth in digital sales and 24% year-over-year growth in delivery revenue in the most recent quarter.

With same-day deliveries, the three retailers are not just trying to outdo each other on convenience. They’re also making physical locations (and close proximity to customers’ homes) their biggest advantage over Amazon and other e-commerce players, says Michael Baker, retail analyst at DA Davidson.

“This has completely turned the dial in recent years and turned stores into assets,” he said.

According to market research firm Numerator, Walmart is the largest grocer in the US, with a 23.6% market share in 2023. Kroger is in second place, with 10.1% market share. Target is the ninth-largest grocer by market share, with 2.7%, the company estimates.

With Target’s announcement this week, Walmart, Target and Kroger will all have paid membership programs with home delivery as one of the benefits. The subscription services have similar price points and minimums, with customers having to spend at least $35 to have goods delivered to their home, for example.

Launching in early April, Target Circle 360 ​​will cost $99 per year, but $49 for customers who have the retailer’s credit card and for those who sign up during a promotion timed to the program’s launch.

Walmart+ costs $98 per year or $12.95 per month, with benefits like gas discounts, free shipping and free grocery delivery. And Kroger has a program called Boost, with a $59 per year and $99 per year option. The more expensive plan includes free two-hour delivery on all orders of $35 or more.

Walmart and Kroger have not shared how many subscribers they have. Target said it has more than 100 million members of Target Circle, its free loyalty program, but it is unclear how many members will sign up for Target Circle 360.

Each of the retailers has tried to stand out from the rest. Target, for example, said it can deliver some online orders within an hour. Walmart said Thursday it will begin on-demand deliveries as early as 6 a.m. local time. Previously they started at 8am

Membership programs help offset delivery and shipping costs by charging fees, but also allow retailers to do this collect more customer data that can be used to personalize offers or support their growing advertising activities, DA Davidson’s Baker said. They can also ensure that online orders are placed more often.

For Walmart, the services are a way to compete in ways other than just price. Walmart CFO John David Rainey talked during earnings calls about how Walmart customers are increasingly choosing the big-box retailer for convenience, such as curbside pickup or home delivery options. These services could also become more important as Walmart tries to retain higher-income shoppers it has attracted over the past two years while food prices have been high.

At Target, same-day deliveries can help drive sales. The cheap, upscale retailer’s comparable sales have fallen for three quarters in a row, and the company expects them to fall again this quarter. The company has posted year-over-year declines in digital sales over the past four quarters.

As customers buy fewer discretionary goods, Target has tried to sell more food and household essentials. Those same items, like paper towels and cartons of eggs, are often the items people restock on a regular basis or need to order at a moment’s notice for home delivery.

Kroger has used online delivery to penetrate new regions of the country, including Florida, without opening a single supermarket. It has built massive fulfillment centers powered by automation and robotics from British company Ocado.

On a call with investors on Thursday, Kroger CEO Rodney McMullen described digital as “a key growth accelerator,” and said the company expects another year of double-digit sales growth. He said digital would generate more than $12 billion in revenue by 2023. That’s still a small fraction of Kroger’s annual sales, which totaled about $150 billion that year.

He said digitally engaged customers are spending more at Kroger and supporting the growth of its advertising business.

McMullen said fierce competition with other grocers, such as Costco and Amazon, has left the grocer racing to keep up with customers’ shopping preferences and acquire Albertsons. The FTC filed a lawsuit last month to block that deal. He said on the earnings call that Kroger will defend the merger in a lawsuit and expects hearings to begin by mid-summer.

He said the company is getting closer to turning its online business into a moneymaker.

“We’ve always told everyone that job one is to make sure we don’t lose the digital customer, and job two is our responsibility to figure out how to make sure that customer is profitable,” he said.

While delivery will help the three retailers overcome unique challenges, they still share a common challenge: convincing shoppers who don’t spend as freely. Walmart and Target both beat Wall Street sales expectations for the holiday quarter, but said consumers are still very value-oriented.

Even as Kroger shares rose Thursday, McMullen reiterated that during the company’s earnings call.

“She [customers] tell us they feel better than their behavior changes so far,” he said.

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