Inflation Drives More Middle and Higher-Income Shoppers to Walmart

Known around the world as a place to buy affordable groceries, general merchandise and more, Walmart says it sees inflation driving shoppers from a variety of income levels to its physical and online stores, as consumers prioritize spending.  CEO Doug McMillon made the observation during a fiscal year 2023 second-quarter earnings call August 16.

“The second quarter finished stronger than we had anticipated. Our sales were well ahead of plan, with inflation lifting our average transaction size, but we know that the amount and persistence of inflation is negatively affecting many families,” said McMillon.

The rising cost of food and fuel in the second quarter proved challenging for both Walmart and its customers, the latter of which increasingly sought price relief in the form of private label purchases.

“We want to help families put meals on the table with great value in our other private brands to relieve the pressure they are feeling,” said McMillon. “The quality, value and convenience we offer makes Walmart a smart choice and we are seeing more middle- and higher-income shoppers choose us.”

Walmart is also focused on elevating its digital presence and becoming more “relevant as an omnichannel retailer” according to McMillon, pointing to strong pickup and delivery, the growth of Walmart.com and its Walmart+ membership program.

“Beyond membership, the team is also working on getting items to customers faster, while lowering the cost of delivery through a significant increase in the number of orders fulfilled by stores,” McMillon said. “We have increased this volume by nearly 40% from a year ago. Speed matters, whether it’s how quickly we get items to customers or how quickly we scale new businesses."

Walmart says it expects to have approximately 5,000 merchandise pickup locations by year’s end.

Shoppers seek relief from inflationary heat

“Customers are increasingly choosing Walmart to help them save money as they deal with broad inflationary pressures,” said Executive Vice President and Chief Financial Officer John David Rainey on the earnings call. “As the year has progressed, we have seen more pronounced consumer shifts and trade-down activity.”

In the food category, Walmart saw its private brand growth rate doubled compared to first-quarter levels, said Rainey, who added, “We will continue to manage pricing for customers in a way that preserves our price gaps and allows us to earn market share profitably.”

Walmart reported its U.S. comparable sales accelerated to 6.5% growth in the second quarter, reflecting strong grocery sales at a higher average ticket size. Food sales were especially strong, with growth in the mid-teens. The company's transactions increased 1%, while its average tickets increased 5.5%. E-commerce sales growth was up 12% year-over-year in the second quarter and 18% on a 2-year stack.

Soaring inflation caught even Walmart by surprise

“When we provided guidance three months ago, we didn’t expect food and fuel inflation to accelerate to the levels that we experienced in the second quarter,” said Rainey. “In fact, Walmart U.S. food inflation was up double-digits year-over-year and we saw a nearly 400 basis-points-step-up as the quarter progressed, compared to levels at the end of the first quarter.”

The rising cost for essentials led Walmart customers to reprioritize their spending. Grocery sales went up and general merchandise sales declined, according to Rainey.

Looking ahead to the third quarter, Walmart said it expects net sales growth of about 5% in the U.S. To achieve this growth, it will continue to focus on affordability.

“The world … is feeling various pressures, most pronounced from inflation, of course,” McMillon said. “So, we think we’ve put ourselves in a good spot to continue to make progress and value. When customers and members are focused on value, it’s something that plays to our strengths.”

Editor’s Take:

Just one more sign of how inflation is impacting consumers of various income levels. As noted in the article, the company is playing to their strengths and using price and private label products to attract consumers during these challenging times of record-high inflation. Consumer purchasing power has been tremendously impacted - and not in a good way.

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