As retailers compete for grocery shoppers, some of the biggest names in the business have focused on the same strategy: getting deliveries to customers' doors quickly.
This week, Aim announced a new paid membership program with free same-day home delivery as a key benefit. Walmart expanded its same-day delivery offering to allow shoppers to receive their online purchases earlier in the morning.
AND kroger said Thursday that home deliveries helped fuel its more than 10% year-over-year growth in digital sales and 24% year-over-year increase in delivery sales in the most recent quarter.
With same-day delivery, the three retailers aren't just trying to outdo each other on convenience. They are also turning physical locations (and short distance to customers' homes) into their biggest advantage over Amazon and other e-commerce players, said Michael Baker, retail analyst at DA Davidson.
“This, in recent years, has completely activated change and turned stores into an asset,” he said.
Walmart is the largest U.S. grocer, with a 23.6% market share in 2023, according to Numerator, a market research firm. Kroger is in second place, with 10.1% of the market share. Target is the ninth largest retailer by market share, with 2.7%, the firm estimated.
With Target's announcement this week, Walmart, Target and Kroger will have paid membership programs with home delivery as one of the benefits. Subscription services have similar prices and minimums, such as requiring customers to spend at least $35 to have products delivered to their homes.
Target Circle 360, which launches in early April, will cost $99 per year, but will cost $49 for customers who have the retailer's credit card and for those who sign up during a promotion timed to the program's launch.
Walmart+ costs $98 annually or $12.95 monthly, with perks like gas discounts along with free grocery shipping and delivery. And Kroger has a program called Boost, which has a $59/year and $99/year option. The highest-priced plan includes free two-hour delivery on all orders of $35 or more.
Walmart and Kroger have not shared how many subscribers they have. Target said it has more than 100 million members of Target Circle, its free loyalty program, but it's unclear how many will sign up for Target Circle 360.
Each of the retailers has tried to stand out from the rest. Target, for example, said it can deliver some online orders in as little as an hour. Walmart said Thursday that it will begin making on-demand deliveries starting at 6 a.m. local time. Previously I started them at 8 am.
Membership programs help offset delivery and shipping costs by charging fees, but also allow retailers collect more customer data that can be used to personalize offers or support its growing advertising businesses, said DA Davidson's Baker. They can also help drive more frequent online orders.
For Walmart, services are a way to compete in ways other than price. Walmart Chief Financial Officer John David Rainey spoke on earnings calls about how Walmart customers are increasingly choosing the big-box retailer for its convenience, such as its curbside pickup or home delivery options. Those services may also matter more as Walmart tries to retain the higher-income shoppers it has attracted over the past two years while food prices were high.
At Target, same-day delivery could help boost sales. The cheap and chic retailer's comparable sales have declined for three consecutive quarters and the company expects them to fall again this quarter. It has seen year-over-year declines in digital sales in each of the last four quarters.
As customers buy fewer discretionary merchandise, Target has tried to sell more food and household necessities. Those same items, like paper towels and egg cartons, tend to be the ones people restock frequently or need to order in a pinch for home delivery.
Kroger has used online delivery to enter new regions of the country, including Florida, without opening a single grocery store. He has built huge logistics centers powered by automation and robotics from UK-based company Ocado.
On a call with investors Thursday, Kroger CEO Rodney McMullen described digital as “a major growth accelerator” and said the company expects another year of double-digit sales growth. He said digital generated more than $12 billion in sales by 2023. That's still a small portion of Kroger's annual revenue, which totaled about $150 billion for the year.
He said digitally engaged customers spend more at Kroger and support the growth of its advertising business.
McMullen said fierce competition with other grocery stores, such as Costco and Amazon, has seen grocery stores compete to keep up with customers' shopping preferences and try to acquire Albertsons. The FTC sued to block that deal last month. He said on the earnings conference call that Kroger will defend the merger in litigation and expects hearings to begin in mid-to-late summer.
He said the company is getting closer to turning its online business into a source of income.
“We've always told everyone that the first job is to make sure we don't lose the digital customer, and the second job is our responsibility to figure out how to make sure that customer is profitable,” he said.
While delivery will help all three retailers overcome unique problems, they still share the common challenge of winning over shoppers who don't spend as freely. Walmart and Target beat Wall Street's sales expectations for the holiday quarter, but said shoppers are still very focused on value.
Even as Kroger shares rose Thursday, McMullen echoed that on the company's earnings conference call.
“They [customers] tell us that they feel better more than their behavior is changing so far,” he said.
