Wal-Mart Stores Inc. is still the best bet to win the U.S. grocery market, despite the threat of Amazon.com Inc.'s merger deal to acquire Whole Foods Market Inc. and the expansion of other grocery chains, analysts at Oppenheimer said in a note published Aug. 1.
Oppenheimer's analysts have assigned Wal-Mart an outperform rating and $90 price target.
Wal-Mart's aggressive investments in online grocery, including free two-day shipping with a $35 minimum, easy reorder for frequently purchased items online, and a discount for picking up items at a store that were ordered online, put the retailer on par with other major players such as Amazon, the analysts said.
"We would be more concerned for our [Wal-Mart] call if [Amazon] were to open more aggressive grocery pickup locations throughout the country in a profitable fashion," the analysts said. "This remains a big unknown and an area of intense focus for us."
The rise of e-commerce players including Amazon is not the only challenge Wal-Mart is facing. Oppenheimer's analysts said they expect German-based discounter Lidl to open locations in many Wal-Mart markets during its expansion into the U.S.
"The grocery backdrop remains quite dynamic, and the competitive environment likely only gets tougher from here," the analysts said.
Oppenheimer researched the two companies in the Winston-Salem, N.C., market where, during the initial phase of Lidl's push into the U.S., the German grocer opened a location near a Wal-Mart. The analysts found that Wal-Mart's pricing remained competitive to Lidl. Of the 20 Lidl stores in Oppenheimer's mapping study, 45% were within 1 mile of a Wal-Mart and all were within 10 miles.
"We walked away more confident in [Wal-Mart's] ability to combat the Lidl threat through aggressive adjustments of pricing and/or merchandising tweaks," the analysts said.