Wal-Mart's grocery pickup investment will keep it ahead of the competition

Wal-Mart holds a lead position in the grocery category, which its investment in online grocery will reinforce, analysts say

Wal-Mart Stores Inc.’s investor day announcement that it will invest in more than 1,000 online grocery pickup locations is a strategy that will keep the retail giant ahead of the competition, according to John Zolidis, president of Quo Vadis Capital.

Wal-Mart WMT, +4.77% said Tuesday that the company plans to open fewer than 15 Supercenters and fewer than 10 Neighborhood Markets in the U.S. fiscal 2019. Still, capital expenditures for both fiscal years 2018 and 2019 will be about $11 billion.

“This indicates that capex growth is being reallocated to support online and e-commerce efforts,” Zolidis wrote. “These projects, which allow customers to order grocery product on an app and have it placed directly in their car’s trunk in a drive through at the store, represent a very interesting merger of Wal-Mart’s low-price offer together with increased convenience and personalization enabled by technology.”

Taken together, Zolidis thinks it’s a service that differentiates Wal-Mart.

“We don’t anticipate that its direct competitors in either the grocery or online only space will be able to duplicate this offer in the near-term, providing Wal-Mart with a competitive advantage and ability to both defend and take share,” he wrote.

Wal-Mart Chief Executive Doug McMillon confirmed that the company is focused on bringing together its bricks-and-mortar locations with its digital capabilities to appeal to consumers.

“We’re combining the accessibility of our stores with e-commerce to provide new and exciting ways for customers to shop,” he said in a statement.

On Monday, the retail giant announced the latest addition to its Mobile Express service offering, Mobile Express Returns, which allows customers to start the return process on their mobile devices and complete it in the store. The goal is to reduce the amount of time it takes to complete a return to 30 seconds.

The other two Mobile Express offerings are for money services and pharmacy.

Even with these efforts, Moody’s Lead Retail Analyst Charlie O’Shea believes Wal-Mart won’t be able to overtake the lead position online that Amazon.com Inc. AMZN, -0.70% has staked out, even if it can separate itself from other grocers.

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“We still believe Amazon’s lead in online retail is insurmountable, however Walmart continues to widen the gap between itself and all other brick-and-mortar retailers by leveraging its unmatched physical resources, including stores and supply chain, and in the process is providing consumers with a compelling online alternative to Amazon,” he said in a statement Tuesday.

Amazon’s acquisition of Whole Foods is the e-commerce giant’s effort to push further into the grocery business, with some saying early on that the combination could make Amazon a top U.S. grocer.

“The redeployment of significant capital expenditure dollars from new stores in the US to online improvements and store remodels, especially the 1,000 store increase in in-store grocery pickup locations, will help Walmart maintain its market-leading position in the U.S. grocery segment.”

Wal-Mart also announced a $20 billion share repurchase program that will replace the existing program. Wal-Mart shares have jumped 4.3% in Tuesday trading.

The company’s stock is up 23.8% for the past year while the S&P 500 index SPX, +0.12% is up 17.8% and the Dow Jones Industrial Average DJIA, +0.20% is up 24.2% for the period.

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