Wealthier shoppers turn to Walmart for groceries

Wealthier customers pinched by inflation are switching to Walmart for groceries, boosting sales at America’s largest retailer.

Walmart (WMT) on Tuesday reported annual US sales growth of 8.2% last quarter at stores open for at least a year. The results beat Wall Street analysts’ expectations, pushing Walmart (WMT)’s stock up around 6% during pre-market trading Tuesday.

“Although times are tougher, consumers’ desire for value and low-prices is playing into Walmart’s hands,” Neil Saunders, an analyst at GlobalData Retail, said in an email to clients Tuesday.

Walmart is a bellwether of consumer spending, particularly on groceries, which account for more than half of its sales.

The company said it is making “strong grocery share gains, including from high-income households.”

A person walks near a Kohl's department store entranceway on June 07, 2022 in Doral, Florida.

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It’s the latest sign that the highest inflation in decades is altering shoppers’ spending habits, including wealthier customers. Food prices increased 10.9% in October from a year ago. Other discount supermarkets and Dollar General (DG) have said they are gaining new, wealthier customers because of inflation.

Walmart said that its private-brand sales grew, a signal that customers were switching from pricier name brands to cheaper store labels.

Many shoppers also prioritized groceries and daily essentials over higher-priced discretionary items. Walmart’s grocery sales increased in the “mid-teens” last quarter, while its sales on general merchandise grew in the “low single-digits.”

There was “softness in discretionary categories including electronics, home, and apparel,” Walmart said.

Walmart had to mark down prices on many of these items to entice shoppers to buy, hurting its profit. Many retailers are oversupplied and are promoting more products than they were a year ago to spur customer demand.

For the crucial holiday stretch, Walmart projects that its sales will increase 3% from a year ago.

The National Retail Federation, a trade group for the retail industry, estimates that holiday sales will increase between 6% and 8% this year, slower growth than a year ago.