How is Walmart driving so much demand through its 1P platform?

We are continuously analyzing grocery shopping behavior from various vantage points to provide vital perspectives that make our insights more actionable. One recent deep dive into Walmart has uncovered a significant, yet often underestimated, factor in its impressive eGrocery performance to date: an unwavering focus on its first party (1P) digital platform.

How would you answer this question?

In early July, we posted a LinkedIn poll asking, What share of Walmart’s online grocery orders [do you think] are now completed via its first-party platform, i.e. app/web? Folks could choose one of four response options that ranged from 65% to 95% and the results are summarized below.

• The top answer was "85%," which while it seems quite high, is surprisingly below the correct response as estimated by our ongoing monitoring of this key performance indicator (KPI). These results reveal in general that the broader market – as measured by our small sample - are underestimating the market leader's digital prowess.
• The disparity in answers relative to the perceived split in Walmart’s eGrocery business between 1P and 3P is understandable given the lack of publicly available data, but it also underscores a critical strategic divergence between Walmart and what we see elsewhere across the market.

Granted, most grocers would likely know this answer for their own business, but we’d need to lower the response scale. And this difference in how eGrocery performs between Walmart and almost every other retailer is precisely why Walmart's approach warrants closer examination.

So, how is Walmart driving such substantial demand through its 1P platform?

The short answer: It's a deliberate and disciplined strategy.

Walmart has largely cultivated a "walled garden" approach. A recent Brick Meets Click competitive assessment reveals Walmart's presence on third-party marketplaces in the U.S. is minimal and limited to a small subset of the top 100 trade areas.

This strategic choice provides several significant and direct benefits to Walmart's economic engine.

• Turbocharged Retail Media Potential: Building customer traffic on its own platform maximizes eyeballs, clicks, and conversions, fueling gains associated with its aggressive approach with retail media initiatives.
• Improved Labor Productivity: Consolidating orders on its 1P platform allows employees to pick, pack, and stage (i.e., assembly of orders) more orders simultaneously, enhancing operational efficiency.  And this is before the benefits that will accrue from its investment in and rollout of automated fulfillment centers.
• Optimized Last-Mile Delivery Costs: A higher share of 1P orders creates greater opportunities to batch more orders at the same time for Spark drivers and to build higher route densities for its owned fleet staffed by store associates, ultimately driving down operating costs further.

While this may seem like an oversimplification of a very complex ecosystem, the deliberate and disciplined nature of their choice to limit marketplace integration is a cornerstone of Walmart's strategy.

Can other grocers imitate this strategy?

Replicating Walmart's success will prove challenging for most Supermarkets, but being a fast follower where it makes sense has its merits. Walmart’s scale certainly plays a role; however, several other factors are critical to their current success.

• Aggressive Advertising: Walmart's sustained and significant investment in advertising has been crucial in driving awareness and interest within its ecosystem and offsite.
• Membership Program: The aggressive and ongoing promotion of the Walmart+ membership program has been instrumental in both converting existing customers into more loyal shoppers – expanding its share of wallet - and also attracting new shoppers with compelling benefits like free deliveries and lower grocery prices – overcoming a barrier that physical stores nor Pickup could do.
• End-to-End Control: Having greater control over the order, assembly, and distribution stages of the online shopping process enables more consistent execution, leading to a stronger customer experience. Our ongoing research at Brick Meets Click shows Walmart consistently outperforming competitors in repeat intent rates and this may be one of the key causal factors.

Connections, Control, & Cost

So, Walmart's strong 1P performance isn't simply a matter of size but it definitely helps a lot; it's a reflection of a cohesive strategy that prioritizes owning the customer connection, optimizing operational efficiencies, and leveraging its digital ecosystem to sustain more profitable growth. 

• The result of Walmart owning the “customer connection” means that nobody knows Walmart’s customers better than it does and there are very few other grocery retailers that I’d put in this camp.

• Understanding these dynamics is crucial for any grocery retailer aiming to compete effectively in the evolving and highly competitive online landscape.

One tool that can guide your planning process is Brick Meets Click’s 3 C’s framework (Connection, Control, & Cost) that defines these as three strategic imperatives that will help improve the profitability of online orders and enhance the customer’s experience.

Want more?

If you found this insightful and want to learn more (including Walmart’s current level of 1P order share), our various reports, or how we can support your team, shoot me an email so we can begin that dialogue.