In its October quarter (fiscal third quarter) earnings report, the retail giant disclosed that its total U.S. e-commerce revenue rose 41% annually, an improvement from the 37% growth reported for its July quarter. And as was the case in its July quarter report, Walmart made a point of noting that it saw "strong growth in online grocery."
On the earnings call, CFO Brett Biggs reiterated that Walmart expects a slower U.S. e-commerce growth rate in its January quarter than during the first three quarters of fiscal 2020, due to "product mix, initiative timing and [annual] overlaps." However, he also signaled that quarterly growth will be at least 30%, and said his company feels good about its ability to achieve full-year growth of around 35%.
Separately, CEO Doug McMillan talked up Walmart's online grocery momentum in various international markets. Online grocery orders helped fuel a 65% increase in Walmart's Mexican e-commerce sales, and a near-triple-digit increase in Chinese e-commerce sales.
Walmart still doesn't break out its U.S. e-commerce revenue. However, with Walmart reporting 3.2% same-store sales growth (excluding fuel) for a U.S. retail segment that had revenue of $80.6 billion in the year-ago period, and also stating that its U.S. e-commerce business grew 41% and provided a 1.7-point boost to same-store growth, some rough math suggests that U.S. e-commerce revenue was above $4 billion, and possibly above $4.5 billion.
That still suggests Walmart's U.S. e-commerce business is a small fraction of the size of Amazon.com's (AMZN) -- particularly if one is talking about traditional e-commerce as opposed to online grocery orders. In Q3, Amazon's North American segment, which covers all of its U.S. and Canadian operations outside of Amazon Web Services (AWS), saw revenue grow 24% to $42.64 billion with the help of Amazon's recent one-day Prime shipping initiative.
Even after backing out Canadian sales and Whole Foods, Amazon's North American segment revenue might be around eight times that of Walmart's U.S. e-commerce operations. When it comes to traditional e-commerce, Walmart is still very much a second-tier player.
But in the field of online grocery pickups and deliveries involving bricks-and-mortar stores, Walmart -- aided by its massive store footprint, its cost-efficiency and its unmatched product selection in the bricks-and-mortar world -- is the clear leader right now. And between the growth that Walmart's online grocery business is seeing and the company's willingness to charge the same prices for online grocery purchases that it does for in-store purchases, Amazon has no choice but to mount a serious response.
And that's just what Jeff Bezos & Co. have begun to do. Two weeks ago, Amazon announced that it's making its Amazon Fresh grocery delivery service, which previously cost $14.99 per month, free for Prime members (subject to a $35 order minimum) outside of driver tips.
Amazon Fresh was only available in 21 metro areas as of late October. But it's a safe bet that number will steadily rise. And for Prime members living in one of those metro areas, the service is a pretty good deal.
In my experience in Phoenix, Amazon Fresh's product selection wasn't quite as good as that of Walmart's online grocery service, which provides free pickup but (like nearly every other online grocery service) charges for delivery. However, its selection was still considerable and the prices were generally competitive with Walmart and local supermarkets.
Amazon Fresh is likely to lose money in the near-term, given its prices and delivery costs. But those losses could diminish over time as the service's scale grows. And notably, thanks to both Prime's scale and giant last-mile delivery investments, Amazon might be better-positioned than anyone not to lose money hand-over-fist on a free grocery delivery service.
Moreover, if a service like Amazon Fresh has a meaningful impact on Prime customer sign-up and retention rates, and/or helps Amazon carry out future Prime price hikes, Amazon might be comfortable running the service near breakeven for some time.
Amazon's efforts to take on Walmart and other online grocery players also extend to building a new grocery store chain that (unlike the more upscale Whole Foods) will reportedly be geared towards middle-class consumers. The company recently disclosed that the chain's first store will open next year in the L.A. suburb of Woodland Hills.
Building out a large grocery store chain is bound to take a number of years. But over time, the purchasing power, product selection and logistics benefits provided by running such a chain could put a service such as Amazon Fresh on stronger footing.
For now, however, there are a lot of reasons to think that Walmart will keep registering strong online grocery growth in the coming quarters.