Amazon.com's (AMZN) online grocery battle with Walmart (WMT) should be a pretty interesting corporate fight to watch over the next several years, given that each company brings some major and unique strengths to the table.
Amazon is putting one of those strengths on display this week, as it opens the first full-sized grocery store to support its Go cashierless checkout technology. The Seattle store occupies 7,000 square feet and contains 5,000 unique items, and (like the 25 Go convenience stores Amazon has opened up) relies on a mobile app, cameras, sensors and machine learning algorithms to let shoppers buy items without ever standing in a checkout line.
Amazon also provides shoppers with free reusable bags to put their groceries in as they shop. It isn't clear right now how much it costs Amazon to build a store like this, nor what kind of volumes will be needed to turn a profit on it. But it is clear that Amazon's technology lead when it comes to cashierless retail has allowed it to build a one-of-a-kind grocery store that (provided it works as promised) many shoppers are likely to find more convenient than traditional supermarkets.
The Go grocery store is launching as Amazon gets set to launch a more conventional grocery store in the L.A. area that will be separate from (and reportedly cheaper than) Whole Foods. And it's launching a few months after the Amazon Fresh grocery delivery service was made free to Prime members, as well as to consumers with a valid SNAP EBT (food stamp) card, provided a $35 order minimum is met.
Amazon Fresh was only available in 21 cities as of October, but that number should steadily grow over time. Whole Foods delivery, which is also free to Prime members for $35-plus orders, was available in nearly 30 cities as of September. In its Q4 report, Amazon noted that Amazon Fresh and Whole Foods grocery delivery orders collectively more than doubled annually in Q4.
Jeff Bezos & Co. are clearly in trial-and-error mode right now when it comes to grocery services. But regardless of how it chooses to proceed from here, it has a few big competitive strengths it can leverage:
- Go's cashierless technology.
- Amazon Prime, and the way that its membership fees and impact on total shopping activity help Amazon subsidize everything from Prime Video to grocery delivery services.
- Amazon's now-massive last-mile delivery operations, which (together with the rest of Amazon's fulfillment/logistics infrastructure) should over the long run should allow the company to more cost-effectively support grocery delivery at scale than many peers.
But Walmart, which has been seeing strong growth for its online grocery services, has a big strength of its own: A U.S. footprint of 4,500-plus giant retail stores that it can leverage to provide pickup and delivery services for groceries and many other in-store items. This is a strength that's the product of decades of investments, and which a few Amazon grocery store launches hardly put a dent into.
Last week, Walmart disclosed that its grocery pickup and delivery services are now respectively available in about 3,200 and 1,600 U.S. stores, while promising those numbers will keep growing. As Walmart keeps expanding its online grocery operations, it's also rolling out a delivery subscription service called Delivery Unlimited, and is experimenting with backroom robots that can automate the grocery-collection process for popular items.
Meanwhile, relative to various other online grocery players, both Amazon and Walmart can claim certain strengths. They each have massive economies of scale, a lot of negotiating leverage with suppliers due to their purchasing power, and a tremendous amount of shopping data that can be used to recommend products and otherwise engage with customers.
Given each company's strengths and the massive size of the U.S. grocery market, online grocery services are quite unlikely to be a winner-takes-all field. But for very distinct reasons, two grocery sellers do look particularly well-positioned for this fight.