Following several consecutive years of moderate to strong growth, Wal-Mart Stores, Inc. appears increasingly challenged to sustain its momentum. As management has described its strategies for success going forward, food has a center stage role, with the effort and outcome holding important implications both for the world’s largest retailer and its many food suppliers.

Even with its extraordinary size (global revenues nearing half a trillion dollars in the year ended Jan. 31), Wal-Mart’s performance has been impressive in recent years. Earnings-per-share growth from the year before was 11% in fiscal 2013, 9% in fiscal 2012, 12% in fiscal 2011 and 11% in fiscal 2010. Shares of Wal-Mart have outperformed the broader market over the past two years.

Rather than generating confidence in the investment community, the results have led some analysts to take a dimmer view of Bentonville, Ark.-based Wal-Mart’s prospects.

“With the low-hanging fruit behind them and considering the company’s massive size and the pressures from the payroll tax increase, we believe comps have peaked/will plateau following three straight years of acceleration,” Christopher Horvers, an analyst with JP Morgan, said earlier this year as part of a downgrade of Wal-Mart to “neutral.”

Attitudes toward Wal-Mart’s outlook generally didn’t change after the company announced first-quarter results. Sales and aggregate net income in the three months ended April 30 rose 1% from the same period a year earlier. In its guidance, Wal-Mart is projecting earnings-per-share growth of up to 8% in the second quarter.

Looking at trends at the company, research analysis by Credit Suisse highlighted a decline in comparable store sales in the first quarter following seven consecutive quarters of growth.

Economic sensitivity of the consumer was cited by Wal-Mart executives as contributing to sluggish sales results in the first quarter. William S. Simon, president and chief executive officer of Wal-Mart U.S., said a $9 billion reduction in Internal Revenue Service estimated tax refunds versus a year ago led to a pocketbook tightening by Wal-Mart’s customers.

“Additionally, the 2% increase in payroll taxes, reduced inflation and some of the most unfavorable spring weather we’ve seen in recent years across much of the country impacted our business,” he said in remarks May 16.

Commenting on positives in first-quarter results, Mr. Simon highlighted a 20 basis point gain in market share for food, consumables and health and wellness products Wal-Mart registered in the 13 weeks ended April 27, as measured by Nielsen.

“Grocery, which includes food and consumables, generated a low single-digit positive comp on relatively flat inflation, a much lower inflation rate than last year,” Mr. Simon said. “In food, we’ve made great progress in the quality of our fresh departments, and I’m particularly excited about the momentum in the produce area. We’ve improved our process for handling and culling produce, allowing us to get the freshest assortment in front of our customers.”

The role food will play in Wal-Mart’s efforts to generate growth was emphasized three weeks later by Mr. Simon in a management update to the investment analyst community. Among retailers competing for consumer traffic, food aisles have become the principal battleground and are likely to remain so, he said.

During the session held in Bentonville, Mr. Simon’s back and forth with an investment analyst offered a telling glimpse into the role seen for food at Wal-Mart and its competitors. Mr. Simon was asked why Wal-Mart wouldn’t shift its focus to other parts of the store if competitors are looking at food as the principal point of differentiation.

“Please don’t misinterpret the focus on food and consumables as a lack of focus on everything else,” he said. “But the velocity of a pillow is one time every year or two years or a sheet. The velocity of bananas or milk is once a week or twice a week. You have to drive velocity through food and consumables. And with the traffic that we get in our business and in our building, we’re able to leverage that traffic on the other side. If you double your traffic on sheets and towels, you won’t have any measurable impact at all on bananas because of the raw numbers. So focusing on food and consumables is focusing on the balance of the box. It’s the same thing.”

Pressed by the analyst about what advantage there is to be gained if all retailers are “doing the same thing,” Mr. Simon said when it comes to food, it was incumbent on Wal-Mart to “do it better than others.”
 
“You have to have a supply chain that can get it there faster, fresher, less expensive, and then be able to continue to invest and lower your price,” he said.

In the battle for store traffic, Mr. Simon acknowledged that from a basic math perspective, all retailers, including Wal-Mart, face a serious challenge.

“If you take the number of doors that exist today compared to 10 years ago, retail doors, there are more,” he said. “So the number of doors is growing faster than the number of shoppers or shopping trips. So it’s difficult. There is a continuous, sort of virtuous difficult cycle of improvement. You invest, you improve, you grow traffic, and you have a quarter like we did the last time. Or you don’t, and you figure it out again, and you move forward.”