Could Walmart’s solid expansion into online groceries boost inventories?

Wal-Mart Stores, Inc. WMT is undertaking numerous initiatives to expand its online presence and fend off competition from e-commerce giant Amazon AMZN. Among the various strategies, it is worth noting that Walmart is actively expanding in the rapidly growing online grocery space. It is worth noting that by 2025, this industry is likely to account for almost 20% of total grocery sales.

Along those lines, the supermarket giant recently expanded its alliance with last-mile logistics company Deliv to support same-day grocery delivery in San Jose and much of Silicon Valley, according to multiple sources. Walmart customers can shop online and schedule deliveries anytime between 8 a.m. and 8 p.m. on all days, which will be made by a Deliv driver.

It’s worth noting that Walmart’s stellar e-commerce ventures (including expansion into the online grocery space) have been driving results for quite some time. This, in turn, has helped the Zacks Rank #2 (Buy) stock rise 44.4% for the year, outperforming its industry’s gain of 33.9%. Therefore, we believe that strategies such as the above are most likely to drive share prices higher.

Walmart’s expansion into online grocery stores is likely to be fruitful

Walmart, which competes with Amazon Fresh, has been testing same-day delivery with Deliv for a long time. The two companies apparently partnered with smart lock maker August Homes in September to test home and direct-to-fridge delivery. Under this deal, which was tested in Silicon Valley, users of August Home devices, such as doorbells and security cameras, could opt for Deliv deliveries and monitor the entire delivery process on their smartphones.

Apart from this, Deliv was also one of Walmart’s partners when the latter tested last-mile grocery delivery using Uber and Lyft. These initiatives highlight the solid connections between Walmart and the last-mile logistics company, with both focused on enhancing consumer convenience. Notably, Deliv has a strong presence in the United States, with operations in Atlanta, Austin, Boston, Chicago, Miami, Las Vegas, and Washington, among others.

In addition to striking deals to provide third-party delivery services, Walmart also acquired delivery startup Parcel Inc. to expand same-day delivery in New York. Given consumers’ growing preference for online shopping, we believe the expanded partnership with Deliv is likely to strengthen Walmart’s online grocery category.

Online grocery sales played a key role in boosting Walmart’s e-commerce sales in the third quarter of fiscal 2018. Incidentally, U.S. fuel prices (excluding fuel) increased 2.7% in the quarter, driven largely by a 1.5% gain improving traffic in online stores. Moreover, e-commerce sales positively impacted computer sales at Walmart US by 80 basis points. Walmart e-commerce sales in the U.S. increased 50% thanks to Walmart.com results. In particular, this includes significant contributions from Walmart’s online grocery service, which currently has more than 1,100 locations and is expected to add 1,000 in the next year.

Additionally, management said its food categories are performing exceptionally well and reporting the highest performance in about six years. Walmart’s international sales also delivered growth, driven primarily by strong positions in the food and essentials categories.

E-commerce initiatives remain a growth engine

Amazon’s growing dominance and expansion in the grocery market has made most retailers concerned, forcing them to make efforts to combat intense competition. To keep pace with changing consumer demand and maintain a strong position in a challenging environment, Walmart is undertaking several e-commerce initiatives, including buyouts, alliances and enhanced delivery and payment systems.

Clearly, Walmart’s buyouts of ShoeBuy, Moosejaw, ModCloth and Jet.com underscore its push to build an impressive portfolio of digital brands. Walmart Pay’s mobile payment system and Mobile Express Returns program further underscore its focus on accelerating online businesses and making shopping easier and faster.

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