Seven months after first reporting that Amazon is planning to open dozens of grocery stores in major U.S. cities, The Wall Street Journal states the company "has signed more than a dozen leases" for stores in the Los Angeles area. Stores are also reportedly being planned for Chicago and Philadelphia.
Importantly, unlike many of the cashierless Amazon Go convenience stores that have launched to date, many of the grocery stores that Amazon plans will be "outside urban cores." In addition, unlike Whole Foods, Amazon's new grocery stores will "cater to middle-income consumers" and "stock mainstream groceries such as soda and Oreos."
Based on this description, it appears that Amazon's grocery stores will directly square off against the likes of Walmart and Kroger (KR) in a way that Whole Foods, which has begun providing free grocery delivery via Amazon's Prime Now rapid-delivery service, currently doesn't. Assuming this is the case, the success that Walmart and to some extent other firms have been seeing for their grocery pickup and delivery services likely has something to do with the effort.
By providing free pickup for $35-plus orders placed online, while charging the same prices for items that it charges within its stores, Walmart's order pickup services offer a pretty strong value proposition for consumers who like Walmart's prices and selection but don't enjoy navigating the company's giant and often-crowded stores and/or want to save time. And for consumers willing to pay a bit to have orders delivered, Walmart is providing delivery services that cost either $7.95 to $9.95 per order or (through a service called Delivery Unlimited) are provided on an unlimited basis for $98 per year or $12.95 per month.
In addition, third-party research indicates that Walmart's grocery pickup services, which will be offered at 3,100 stores by year's end, aren't merely helping it keep existing customers loyal, but are also helping it land new, higher-income customers and increase its average order size. Presumably, a lot of those new customers are also Amazon Prime members.
Naturally, the selection provided by a single Walmart store can't compare with what's provided by Amazon's online marketplace, and picking up an order outside of a Walmart store still isn't as convenient as having it delivered to your door via Prime. But between Walmart's low prices (enabled by the cost-efficiency and purchasing power of its bricks-and-mortar empire) and the fact that its stores can provide items that need to be refrigerated or frozen, the company's pickup and delivery services have a lot of headroom to grow in spite of Amazon's ongoing dominance within traditional e-commerce.
From the looks of things, Amazon has decided that it needs its own line of low-cost grocery stores to meet the challenge presented by Walmart. Presumably, such stores will be built from the ground up to support grocery pickup and delivery. One can also imagine Amazon installing pickup lockers within the stores for traditional e-commerce orders, offering discounts on items to Prime members (as it has done with Whole Foods) and leveraging the warehouse and logistics infrastructure it has built for its online empire in various ways.
Needless to say, building a large, brand-new, grocery store chain would be a very capital-intensive undertaking, and one that would take a number of years to see through. But it also might be Amazon's best bet for countering the strategic advantages that Walmart's massive bricks-and-mortar footprint provides it with in the online grocery realm.
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