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Walmart's Moat in the US Grocery Market

- By Sangara Narayanan

Wal-Mart Stores Inc. (WMT) is the real 1,000-pound gorilla in the U.S. grocery market. The world's number one retailer in terms of revenue has made several interesting moves in the last year to sure its leading position remains as strong as it ever was.

Walmart is estimated to control nearly 21.5% of the $800 billion U.S. grocery market. It has been on a tear the last two years, posting 13 consecutive quarters of same-store sales growth. This growth can be attributed to the retailer's e-commerce sales, which have been expanding at double-digit rates for the last five quarters. As Walmart continues to eat into Amazon.com Inc.'s (AMZN) e-commerce stronghold, the latter has been doubling down in an attempt to push into Walmart's strength, the grocery market.

Thankfully, unlike the Walmart of the past, the company did not sit on its thumbs and wait to see what happened. Rather, it took the initiative to ensure it remains the leader in the valuable and highly competitive grocery segment. One such initiative is its grocery pickup service. Walmart's customers can now order online and pick up their groceries at their convenience at a location near them.

Walmart began testing its grocery pickup service in the Denver, Colorado area back in 2014. Although it took several years to zero in on the mechanics behind the strategy, it has since been aggressively opening nearly 400 pickup locations in the last year. At the end of the first quarter of 2018, which ended in April, the service was available in 670 locations. Then, earlier this month, the company announced it opened its 1,000 th grocery pickup location.

Considering Walmart's physical network strength, it is quite possible for the retail giant to take this even further. According the the company, it has one store within 10 miles of 90% of the U.S. population and is steadily expanding its smaller-format Neighborhood Market stores, further increasing its penetration. In additon, it announced in June it is experimenting with associate delivery, where employees deliver ship-to-home orders.

Walmart had 3,550 Supercenters and 699 Neighborhood Markets spread across the country as of July 31, which is a massive advantage in and of itself. With its pickup service, the company is not only making it far more convenient for customers, but is also ensuring it retains the cost advantage it has over other competitors.

When you look at the scale, size and well-oiled supply chain of Walmart's grocery operations, the company has clearly made significant strides in protecting its turf in the grocery market. Amazon or not, Walmart will remain the king of the U.S. grocery space for many more years to come.

Disclosure: I have no positions in the stocks mentioned above and no intention of initiating a position in the next 72 hours.

This article first appeared on GuruFocus.