Publix thrives as Walmart grapples with its grocery business

Aug 19, 2015, 7:20am EDT Updated Aug 19, 2015, 7:36pm EDT

 Enlarge

Enlarge

LUKE SHARRETT

Walmart Supercenters are too large and inconvenient for some customers, but Walmart is… more

Wal-Mart Stores Inc. is still grappling with its grocery business, but it is seeing early success with a small pilot program of online food shopping.

Wal-Mart's net income for the second quarter (which ended July 31) was down compared to last year, while revenue stayed flat. The company said the decrease was due to "currency fluctuations, lower margins in the U.S. and investments in customer experience," including a significant investment in its ecommerce operation. (It is planning to spend $200 million in Polk County alone, on a 2-million-square-foot ecommerce fulfillment center that could create 600 jobs.)

Walmart (NYSE: WMT) is Publix Super Markets Inc.'s biggest competitor, going head-to-head with the Lakeland-based grocer for market share in Florida and especially in Publix's hometown area of Tampa Bay. Publix controls more than 40 percent of market share in Central Florida while Walmart controls around 30 percent, according to industry trade pub The Shelby Report.

Publix's competitors at every end of the grocery spectrum have been struggling — most notably Whole Foods Market Inc. (NASDAQ: WFM), which is opening a chain of lower-priced stores in hopes of attracting millennial shoppers. The real food fight, an industry analyst previously told the Tampa Bay Business Journal, isbetween middle-market grocers Publix and Kroger Co. (NYSE: KR)

Publix has been reporting record-breaking revenues and has already surpassed $1 billion in profit this year.

But Walmart is not going down without a fight. Earlier this year, it shook up its grocery executive team and planned to put more of an emphasis on fresh food and produce. Grocery is a sector where competition has never been more cutthroat, and Walmart's low prices have increasingly not been enough to get customers in the door, especially as grocers like Publix have made an attempt to be more price conscious.

"Now, what you're seeing is that consumers aren't willing to deal with the inconvenience and the sheer size of a Walmart Supercenter when they could only save 5 or 6 percent," Brian Yarbrough, an analyst with Edward Jones, told CBS Money.

But one bright spot for Walmart is early success in online grocery shopping. Neil Ashe, the company's head of global ecommerce, said on the earnings call that he was "pleased with the expansion and progress on grocery home shopping in the U.S."

"We’re in five markets and sales continue to grow because customers, especially moms with children, love the convenience of ordering online and having their car loaded at a pick-up location," Ashe said.
Publix has been adamant that it's difficult to profit on online grocery shopping, even as Walmart and Kroger ramp up that service. Amazon.com, too, is getting in that game — it's said to be planning drive-thru grocery stores in Silicon Valley,where customers will order groceries and online and pick them up at the brick-and-mortar location.  But Publix has expanded its Online Easy Ordering options to include bakery cakes, recently rolling that service out companywide. While it's not affiliated with Publix, an app-based grocery delivery service called Shipt recently launched in Tampa Bay.
Walmart's success with its pilot program is promising, said Neil Saunders, CEO of Conlumino, a retail analysis firm. "Although it is currently only in five markets, this has proved to be a highly popular service and one which, as well as driving sales and growth, has helped to reshape perceptions of shopping at Walmart for groceries," Saunders wrote in a research note. "We have always argued that although Walmart’s grocery offer is generally strong, the vast nature of the stores as well as their busyness during peak times can make for a less than pleasant shopping experience that is off-putting for consumers. The pick up service removes this hassle and we believe it has helped Walmart to win back customers in core grocery."