Walmart is becoming a greater threat to Kroger and Whole Foods

• Hayley Peterson
 
•  

• Nov. 17, 2015, 10:28 AM
 

Reuters

Walmart's grocery business has started to turn a corner.

The retailer just posted its strongest quarter of food sales growth in a year, Walmart US President Greg Foran said Tuesday.

"What we’ve been working on this year is basic blocking and tackling, doing the simple things really well," Foran told reporters on a conference call.

He said Walmart has made great strides in particular in fresh produce and organics. 

Walmart reported third quarter earnings on Tuesday of $3.3 billion, or $1.03 a share, beating analyst estimates of 98 cents a share. Same-stores sales in the US grew 1.5%, marking the fifth straight quarter of growth, and traffic was up 1.7%.  Revenue fell 1.3% to $117.4 billion.

Groceries are vital to the retailer's success, accounting for 56% of its sales.

But Walmart's grocery department has been plagued by negative customer reviews in the past.

Customers have complained about a lack of fresh produce, poor service, and empty shelves, BMO Capital Markets analyst Wayne Hood wrote in research note in September. Our analysis of Yelp reviews yielded similar complaints. 

To improve its fresh departments, the company has ramped up restocking efforts and increased staffing in grocery to make sure customers can find what they need, Foran said.

Business Insider/Hayley PetersonThe fresh department of a Walmart Neighborhood Market store.

In its smaller-format Neighborhood Market stores, Walmart stores crates of extra produce under the displays, so employees don't have to trek to the back of the store to restock shelves. The company's Neighborhood Markets, which focus entirely on groceries, posted 8% same-store sales growth in the most recent quarter.

The company is also expanding the assortment of products in its bakery department, and baking more items in stores, Shawn Baldwin, who is the head of fresh foods and quality control at Walmart, told Business Insider in a recent interview. The items that are baked in stores are getting more prominent displays, as well.

One of those store-baked items is Walmart's best-selling apple pie. The pie had a filling that was 31% apples last year, and it has since been reformulated to include filling that is 70% apples. The pie sells for between $4.59 to $5.69

Walmart's pumpkin pie is another best-seller. The company expects to sell two pumpkin pies every second from November through Christmas, Baldwin said. 

Business Insider/Hayley Peterson

Walmart is also noticing that people are snacking more, so it's packaging muffins, donut holes, and other snacks in single-serve containers.

"We've upgraded the assortment to include more indulgent small snacks and things that have cleaner labels and better ingredients," Baldwin said. 

Walmart is improving its fresh department amid growing competition from rivals like Kroger and Publix, which have been aggressively growing their grocery offerings to include more produce, organics, and freshly prepared foods.

Both Kroger and Publix have higher customer satisfaction ratings than Walmart, according to Hood's September research note.

That's a troubling sign for Walmart, since it consistently offers lower prices than its rivals.

Walmart's grocery prices are approximately 10% to 15% lower than Kroger's, according to Hood.

But the lower prices have previously failed to spur growth in Walmart's grocery business, as illustrated in the graph below.