Walmart Inc. is expanding its grocery delivery program to more than 1,400 U.S. stores this fall, looking to gain an advantage in the online grocery game and increase the pressure on competitors, analysts say.
The company's Delivery Unlimited program is the retailer's latest tactic to compete against Amazon.com Inc. in the race for more market share in the U.S. Both companies are ramping up efforts on several fronts, including the grocery arena and same-day delivery.
Walmart said Sept. 12 that it would expand its grocery delivery membership program in the U.S. after testing it earlier this year in Houston, Miami, Salt Lake City, and Tampa, Fla. Customers can receive unlimited Walmart grocery delivery orders for an annual fee of $98 or a monthly fee of $12.95. Customers can also opt to pay a per-delivery fee, without a membership.
Groceries in a Walmart store Source: The Associated Press |
It is a less expensive grocery delivery service than what Amazon currently provides. Amazon includes grocery delivery through its Prime membership program, which costs $119 a year, but subscribers must pay a fee for grocery orders of less than $35. Prime members also have access to the company's Amazon Fresh grocery delivery and pickup service in select cities for an additional $14.99 per month.
Charlie O’Shea, an analyst with Moody’s, said in an interview that Walmart's 5,300-store network is a key area of strength when it comes to grocery delivery, allowing the retailer to leverage its stores as "mini distribution centers" for food.
"Because you're talking about food and the fresh component, you've got to be close to the customer," O'Shea said. "This is an easy thing for Walmart to do."
Amazon, by comparison, has a network of 500 Whole Foods Market Inc. stores and offers grocery delivery service in 88 metros, with more in the pipeline. "There's only so far you can leverage the Whole Foods stores and Amazon's same-day capability, which is the third-party [delivery] base," O'Shea said.
Amazon did not immediately respond to inquiries from S&P Global Market Intelligence.
Walmart's U.S. market share in the grocery arena is already at $270 billion, dwarfing Amazon's estimated $20 billion, O'Shea noted.
"Walmart has won the grocery battle against Amazon as Amazon has won the online battle against Walmart," he said. "They were already going to have a tough time with Walmart in food. Walmart is already the king of grocery, and now it's super-king."
O'Shea and other analysts say Amazon could better compete in the grocery market by leaning on its third-party delivery network.
"They would have to expand that dramatically in order to match this," O'Shea said.
Justin Smith, founder of TJI Research, said in an interview that he thinks Amazon will experiment with different types of smaller store formats to create a wider real estate footprint than it has now with Whole Foods.
The smaller format stores would be a hybrid between a grocery store and a distribution center, he said.
"These days, you go to the grocery store, you see a lot of pickers and delivery couriers using the retail grocery store space effectively as a place to have a relay station for choosing items to deliver," he said.
David Silverman, a senior director in Fitch Ratings' corporate group, added in an interview that secondary players, such as Kroger Co. and Publix Super Markets Inc., and regional grocery companies offering delivery service also will be affected in various areas across the U.S. On Sept. 12, Kroger Chairman and CEO William Rodney McMullen said Kroger's delivery and in-house pickup sales are accessible to 95% of its customers. The Ohio-based chain charges $11.95 per delivery order.
Silverman said having a large market share in bricks-and-mortar retail in a particular market will be key to capturing online delivery sales in the same area. "In the grocery game, it's important to have a No. 1 or No. 2 share in local markets that allow you to leverage marketing efforts and allow you to leverage fixed costs of operating in a given market," he said.

