Walmart is catching up to Amazon in the online grocery wars: Citi

Competition in the online grocery space is showing no signs of cooling off.

E-commerce behemoth Amazon (AMZN) has been the dominant force, but Walmart (WMT) is giving it a serious run for its money, according to Citi.

The firm conducted a survey asking 2,000 U.S. consumers, more than 200 supermarket managers and Citi’s global consumer analysts about the current state of the online grocery wars.

“Our analysis found that consumers most frequently indicated that Walmart had the best delivery among food retailers. Additionally, Walmart delivery appeared to be the most accessible, appearing most frequently on respondent rank orders,” analyst Gregory Badishkanian wrote in a note to clients Friday.

The intensifying battle between the big retailers has been in focus for investors. In December, RBC Capital Markets conducted a similar survey and found that Amazon was king of the online grocery wars, despite losing market share from the prior year. In 2018, of the respondents that purchased groceries online, 38% used Amazon, while 15% used Walmart or Walmart-owned Jet.com, according to RBC.

Citi’s research found that Amazon’s market share decreased even further. After asking respondents where they purchased groceries (for both delivery and click-and-collect), Citi assessed that Amazon currently commands nearly 25% of total U.S. market share, while Walmart dominates almost 23% of the market.

Though Walmart is still losing to Amazon in terms of market share, it is the winner when it comes to quality of delivery, according to Citi’s research. Twenty-nine percent of respondents said that Walmart had the best delivery, while 25% selected Amazon.

While Amazon and Walmart are the leaders in the online grocery space, there are other worthy competitors as well. “Other large food retailers continue to invest in online grocery, potentially challenging both Amazon and Walmart for share,” Badishkanian said. “Notably, Kroger offers the best in-store experience based on our survey of supermarket managers, while still maintaining high quality delivery services.” He also noted that Kroger (KR) currently has the highest click-and-collect penetration amongst the traditional grocers.

And it’s not only Kroger. Costco (COST) has a lot of growth potential when it comes to online grocery. “For Costco, the online space remains an opportunity, as survey work shows that just 18% of Costco members shop the company's website with some degree of regularity and only 7% of members have purchased food online from the warehouse club,” Badishkanian wrote.

E-commerce sales are an essential part of most retail businesses. In its most recent quarterly earnings release on May 16, Walmart reported that online sales grew 37% during the quarter, up from 33% last year. Meanwhile, last week, rival Target reported digital sales growth of 42% and now represents 7% of the retailer’s total sales.

“Traditional food retailers concluded that the most successful online model will be one that offers groceries through all channels and allows the consumer to choose how he/she wants to interact with the retailer,” Badishkanian said. “While the Amazon/Whole Foods deal may have accelerated e-commerce development in the grocery sector, the acquisition also supports the view that a physical presence, in combination with the tech initiatives detailed above, is required in order to be impactful in the grocery industry.”

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Heidi Chung is a reporter at Yahoo Finance. Follow her on Twitter: @heidi_chung.

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