Walmart is a store you stopped visiting decades ago. Amazon is a service we use every day. But you would still think of Walmart as a grocery store and Amazon as a 'not-a-grocery-store'. If you look at it hard, it's an aberration. You need fresh groceries daily and not electronics or even household items. Yet, we get an Amazon package every day and it is not groceries. We don't get anything shipped from Walmart, leave along groceries.

This aberration sums up the opportunity and pain for Walmart.

‍Display of resilience

eCommerce as a percentage of total retail is now trending to be lower than the forecasts made before the pandemic. The pandemic accelerated eCommerce but the economy has a different plan – except when it comes to the grocery category. Specifically, food and beverage eCommerce's share of retail is now a full 0.5% more than the forecast of 5%. Grocery as a category has crossed double-digit penetration in 2021, to 11% – which is a smidge closer to the overall eCommerce penetration of 15%.

A recent survey by McKinsey shows that the interest in shopping for groceries online is here to stay.

So, good news Walmart? After all, they are the largest grocery retailer.

‍The battle of relevance

When the economy is down and discretionary spending is cut, grocery is the last category to be affected. As food inflation rises, people search for affordable options and Walmart gets nearly 2 out of the 10 consumer dollars spent on groceries. So how and where consumers buy their groceries deeply affects Walmart.

This is why Walmart has much to worry about. On the 2022 Prime Day event, Amazon Prime subscribers spent more on groceries than ever. According to Feedvisor, compared to 2021, Prime subscribers spent 12% more on groceries. They spent 30% more on household essentials than in 2021. Consumers are buying everyday items online and are voting for Amazon with their dollars. We already know that but the increase in percentage spending in categories like groceries and household items is a sign of times for Walmart.

It's a matter of 2-3 years before Amazon overtakes Walmart as the largest retailer in the US. The key battle for Amazon to win is the grocery segment and it seems like Amazon is likely to win the battle in spite of not being the leader in the grocery segment. When the penetration of grocery eCommerce increases and the dollar spend shifts from offline to online, it cannibalizes Walmart's revenue. Any migration of grocery spending to online channels is an opportunity for Amazon but a threat to Walmart.

56% of Walmart's revenue comes from 'Food and Beverages' – a category that is defying the trend of eCommerce penetration cool-off. In the US, Walmart holds 18% of the food and beverages market share, compared to Amazon's 2%.

The invisible hand of God

‍The migration of grocery dollars to the online channel takes the battle to the grounds where Amazon has more strategic advantage than Walmart. Online grocery sales penetration is still at 10%, in spite of pandemic gains. That said, averaging out the projections from 25 retailers, Mckinsey expected eCommerce penetration of grocery to be at 23% by 2028. If that indeed happens, Walmart will have more to lose. While not all the gains might go Amazon's way, it underscores the need for Walmart to invest in grocery eCommerce even as it lags behind Amazon across all other categories when it comes to eCommerce.

Is Walmart's store-centric approach going to be a drag on its ability to compete with Amazon or is it the fort from which it will fight the grocery eCommerce battle? If you won't walk into a Walmart will you still buy from them online? Perversely, the economy answers it for Walmart. The poorer the American households become in real spending power terms, the more time Walmart gets to figure out its place online.