Walmart Is Using Groceries to Win Consumers

The retailer is succeeding with low-margin groceries, but it faces serious competition from dollar stores.

May 23, 2023

ALEXANDRIA, Va.—Walmart announced an unusually early upgrade to its annual profit forecast, as the retailer is seeing success from higher-income shoppers choosing Walmart for their groceries, reports Bloomberg. However, America’s largest grocery store may be facing tough competition from other grocers that are also luring in middle- to high-income households looking for a deal.

Walmart is enticing shoppers into its stores with low-margin grocery prices and nudging them to purchase extra items while there. The strategy has helped the retailer thrive during tough economic conditions, according to Bloomberg.

But dollar store competitors, including Dollar Tree and Dollar General, are increasing their market share due to numerous locations. These discount retailers are opening new locations at a faster clip than other retailers, as the channel is being fueled by demand from inflation-weary customers.

According to Dollar General CEO Jeff Owens, the company is benefiting from price-conscious consumers, and even customers who make $100,000 a year have been shopping at its stores.

“Walmart has strategically divested from smaller markets where it found business to be unprofitable, leaving a wide-open lane for dollar stores to muscle through and threaten its hold over the grocery market from the side,” writes Bloomberg.

Last year, Dollar General announced it would expand its fresh produce offering to 10,000 stores over the next several years. The chain also now offers healthy food options at all locations, including assorted dairy items, frozen vegetables, proteins, canned fruits and vegetables, grains and more as part of an increased investment in its health and wellness offerings.

Target is also upping its grocery game, hiring more employees with relevant experience and improving its produce quality and presentation, Chief Food and Beverage Officer Rick Gomez told CNBC recently. Target’s grocery category grew by over 61% between the first quarter of 2019 and this year’s first quarter, according to CEO Brian Cornell.

Both Dollar General and Target are renovating their stores, adding new refrigerators and freezers and boosting supply chains to keep groceries stocked, reports Bloomberg. But Walmart is a formidable competitor, controlling a quarter of the U.S. grocery market (not including its Sam’s Club stores).

One analyst asked during Walmart’s most recent earnings call: “You’ve been taking a lot of share from some of your bigger competitors in traditional grocery. Do you think they’re ever going to respond?”

While dollar stores made up only an estimated 3.3% of grocery sales last year, Dollar Tree and Dollar General consistently ranked among the top five retailers where consumers bought groceries over the last two months of 2022, according to Coresight. Dollar stores are also hiring former Walmart executives, including Jeffrey Davis as Dollar Tree’s chief financial officer and Shweta Bhatia as Dollar General’s senior vice president of technology engineering.

However, the real winner in the grocery games is the consumer. Walmart is the cheapest grocer (aside from Aldi)—a cart of 33 items at Walmart was $187.50, while the same cart at Target came to $194.15. It was $201.14 at Dollar General and $203.67 at Family Dollar, according to a Bank of America study.