Top picks in the food retail industry for 2025 – BMO Capital Markets

The landscape for the food retail industry continues to adapt to increased pricing transparency and intense competition from Amazon (AMZN) with grocers attempting to carve out their unique niches. Looking ahead to 2025, Walmart (NYSE:WMT) and Costco (NASDAQ:COST) remain at the top of BMO Capital Markets’s “pecking order” given their “massive selection,” value, and focus with big-ticket merchandise.

BMO Capital’s Kelly Bania estimates the multicategory big- and small-box retailers to reach a total addressable market (“TAM”) of ~$4.65 trillion with Walmart (WMT), Costco (COST), Target (TGT), Dollar General (DG) and Dollar Tree (DLTR) holding a 19% market share. This translates into $1 out of every $5 available is spent at these retailers. Amazon’s (AMZN) encroachment on smaller price points, and its impact on the grocery category is expected to reach ~$50-$60B in food and consumables, growing 10% a year. Bania estimates that this means Amazon (AMZN) could be gaining ~40% of discretionary dollar growth in the U.S.

“With competition from Amazon on smaller price points and consumer reliance on delivery services exploding in recent years, we continue to rank WMT and COST at the top of our digital ranking and see risk of further investment in digital for [Dollar Tree and Dollar General], Target, and Albertsons,” Bania writes.

Another advantage setting Walmart (WMT) apart from its competitors is its agility in navigating an uncertain and evolving regulatory backdrop, particularly in consideration of tariffs, DOGE implications, SNAP headwinds, tax changes, and deportation of illegal migrants.

While most of these factors would be a headwind to the entire grocery sector, Bania sees dollar stores most at risk given their lack of full price point flexibility, and as their core customers find it more difficult to absorb more cost inflation because of these initiatives. Here again, Walmart (WMT) comes out on top.

Finally, the rebound in the housing market will also benefit Walmart (WMT) and Costco (COST) over competitors. Walmart’s selection rivals that of both Target (TGT) and Amazon (AMZN), while Costco (COST) remains underpenetrated in big and bulky items such as appliances and mattresses. The company’s acquisition of Innovel in March 2020 is helping that business grow and take market share.

Bania raised her price target for Walmart (Outperform) to $110 from $100 and maintains a $1,175 price target for Outperform-rated Costco (COST). For the remaining names, Bania sets a $120 price target for Market Perform-rated Target (TGT), $84 and $70 price targets for Market Perform-rated Dollar General (DG), and Dollar Tree (DLTR), respectively, and $19 price target for Market Perform-rated Albertsons.

Within the food distribution category, Bania raised her price target for Sysco (SYY) by 6% to $85, US Foods Holding (USFD) by 13% to $85 (Bania sees this stock having the most upside among other names in the category), Performance Food Group (PFGC) by 5% to $100, and The Chefs’ Warehouse (CHEF) by 9% to $60.