As more customers turn away from fast-food restaurants, Walmart’s grocery line is reaping the benefits.
Major Problem for Fast Food Giants
America’s biggest fast food empire – particularly the jewel in the crown that is McDonald’s – is facing a major contender in the food department, as more and more shoppers seek affordable groceries at Walmart.
A Big Win for Walmart
Due to record-high inflation, eating out has become prohibitively expensive in recent years. As Americans turn away from the fast food industry, Walmart is profiting.
Stocks Soar and Profits Flow in
The retail giant, which recently launched its own food brand bettergoods, has seen its stock soar to an all-time high this week. Executives believe a significant portion of this success is due to a growing number of grocery shoppers coming through the door.
Quarterly Rise in Transactions
Walmart has seen transactions rise by 3.8% this quarter across both its stores and websites. Walmart now expects its results this year to be on the high end, or even to exceed its previous projections.
CFO Speaks
Walmart Chief Financial Officer John David Rainey has pointed to the soaring prices for fast food and eating out as a key reason for the growth in its grocery sector.
“Benefiting Our Business”
“It’s roughly 4.3 times more expensive to eat out than it is to eat at home,” he said. “And that’s benefiting our business,” he told reporters.
Feeling the Crunch
Many Americans are now turning to affordable grocery stores, and away from takeout, in a bid to save more money. Tens of millions of people are now feeling the crunch of inflation and high interest rates.
Americans Uncomfortable With Food Prices
“Most Americans remain uncomfortable with food prices and are still actively looking for ways to keep their spending in check,” Neil Saunders, said GlobalData Retail analyst Neil Saunders on the recent phenomenon. This has worked in “Walmart’s favor and has allowed the chain to continue to acquire new customers.”
Remaining Competitive
With 10,623 stores worldwide as of January 31, 2023, Walmart has the means to keep their prices competitively low, which has kept people coming back to purchase much of their household goods and groceries.
A New Grocery Brand
Their new brand, which was advertised as “a new elevated experience that delivers quality, unique, chef-inspired food at an incredible value,” has already begun to see success – and for good reason.
300 Items on Offer
Under Bettergoods the retailer sells approximately 300 food items, including snacks and beverages. Most of these products are priced lower than $5, and range between $2 and $15.
Managing Their Pricing
“As we continue to work closely with our suppliers to lower cost, we’re managing our Walmart U.S. pricing, aligned to competitive price gaps,” Rainey said on an earnings call with analysts.
Favorable Responses
“Customers are responding favorably, resulting in sustained sales growth and higher gross margins,” he added.
Continued Upward Momentum
“As a result, we’ve continued to see strong momentum in private brand sales, with grocery penetration up 30 basis points in Q1,” Rainey concluded on the call.
High Cost Benefit
Walmart CEO John Furner has also pointed to the cost of eating out compared to groceries as a major boon for the brand.
Helping Walmart Through the Year
“We see an even larger spread between eating at home, preparing meals at home, and eating out, which we think can help Walmart over the remainder of the year,” he said.
Notable Reduction for Fast Food Giants
The changing relationship to eating out in America is also reflected in the fast-food industry. While Walmart’s sales are up, major corporations like McDonald’s and Starbucks have seen a notable reduction in foot traffic.
McDonald’s Customer Backlash
McDonald’s in particular has faced viral criticisms by customers for its food prices, which have seen the cost of the average menu item increase by 100% in the last decade, according to a study by FinanceBuzz.
New Promotions Necessary
Disappointing quarterly results paired with customer outrage have caused the burger giant to announce new promotions in a bid to bring low-income customers back, including a limited-run $5 meal deal effective next month.
What Happens Next
Whether it will help McDonald’s sales prospects in the long term is unclear, but one thing is certain – it is a long way off from competing with Walmart prices.
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