E-commerce currently accounts for only around 3% of Wal-Mart‘s total revenue, but the company has been investing heavily in its e-commerce initiatives in order to remain competitive in the Amazon-dominated retail market. This is even more relevant now that traditional retailers have to compete with Amazon in the grocery space as well, in addition to its e-commerce business, due to its acquisition of Whole Foods. Below we take a more in-depth look at what to expect from Wal-Mart’s online grocery business.

Summary Of Recent Initiatives

While Wal-Mart is the biggest grocery player in the U.S., capturing around 14% (as of 2016) of the U.S. grocery market, the combined Amazon-Whole Foods entity accounts for just 1.4% of the market. However, Amazon’s share is expected to rise and command nearly 3% market share by 2021, which would put it behind only Wal-Mart and Kroger. To fend off this intensifying competition, Wal-Mart has been ramping up its digital initiatives. Online grocery could present a solid growth opportunity for the company going forward, as groceries account for more than 50% of its sales.

Wal-Mart is well-known for its dominant position in terms of prices, due to its sheer size and logistical capabilities. And now, the company is competing with Amazon on one of Amazon’s key strengths: convenience. For instance, Wal-Mart announced the roll out of giant self-serve kiosk towers, in order to make its in-store pick-up process faster and more efficient. In addition, Wal-Mart also filed a U.S. patent for floating warehouses that can make deliveries using drones, similar to what Amazon was granted in April 2016. Taking these initiatives a step further, Wal-Mart also announced a partnership with Google to offer its products for sale via Google’s voice assistant.

Also, Wal-Mart’s e-commerce site Jet.com launched its own line of groceries Uniquely J, which includes household products including laundry detergent, staples, and coffee. This private label is expected to be of fairly high quality and appears to be Wal-Mart’s attempt to create a line that is different from its cheaper mass-market products. Further, the company also announced plans to add 1,000 online grocery pickuplocations at its U.S. stores in fiscal 2019, which should aid Wal-Mart in maintaining its leading position in the U.S. grocery industry.

Globally, on a constant currency basis, the company’s total e-commerce sales and GMV increased 50% and 54% (including acquisitions), respectively, in the recent third quarter. The majority of this growth was organic through Walmart.com, including online grocery, which is growing fast.

Amazon Still Ahead Of Wal-Mart In The Space

Many customers still prefer to buy groceries in person, and have been less receptive to the online shift so far, as online grocery sales represented just 3% of total e-commerce sales in 2016. However, the market for online groceries is expected to be among the sectors driving overall e-commerce growth through 2022, as the sector is expected to grow at a 20% CAGR over five years. Clearly, Wal-Mart and Amazon will be battling one another for a greater share of the market. Amazon already seems to be a step ahead in that respect, as it is expected to capture 18% of the total online grocery sales in the U.S. in 2017, twice as much as Wal-Mart’s 9% share, according to research firm Packaged Facts. Wal-Mart’s vast presence in more suburban and rural markets is also likely to contribute to that shortfall, as the convenience factor is generally more important to urban customers when it comes to groceries.

Our $80 price estimate for Wal-Mart’s stock is around 15% below the current market price following a rally in the stock.

Source: Forbes