Based on what has been reported so far, Walmart's (WMT) would-be Amazon Prime rival looks more like an enhancement of its existing grocery delivery subscription service rather than anything that could make the average Prime subscriber think twice about renewing.
According to Recode, Walmart plans to launch a $98-per-year service -- known as Walmart+ -- whose perks will include "same-day delivery of groceries and general merchandise, discounts on fuel at Walmart gas stations, and early access to product deals." Both Recode and Bloomberg report that the service will be launching later this month.
Walmart's stock rose 6.8% on Tuesday thanks to the reports. Those gains feel a little questionable -- and perhaps even another example of the market's current buy-first-and-ask-questions-later mood -- even if there is a lot to like about Walmart's ongoing grocery delivery efforts.
Why do the gains feel questionable? Walmart is already offering a $98-per-year service that provides "same-day delivery of groceries and general merchandise." Known as Delivery Unlimited, the service launched last November and supported 1,600 U.S. Walmart stores as of February.
Delivery Unlimited, which can also be purchased for $12.95 per month, provides free deliveries within 2-hour windows on $35-plus orders from Walmart stores (before factoring a driver tip). That makes it a good deal for consumers averaging more than one such Walmart delivery order per month, given that Walmart typically charges a $7.95 or $9.95 fee for grocery deliveries otherwise.
And if Walmart relaunches the service with a few other perks, such as fuel discounts and first dibs on discounted items, such a move could boost sign-ups at a time when online grocery orders have soared for both Walmart and rivals thanks to COVID-19.
But speaking as someone who occasionally uses Walmart's delivery services and (depending on the specifics) is open to signing up for Walmart+, there's a world of difference between a service that pairs Delivery Unlimited with a few extra perks and Amazon Prime. I'm certainly not cancelling my Prime membership if I sign up for Walmart+, and I doubt many other Prime members will either.
Whereas Walmart Supercenters stock (per Walmart) 142,000 items on average, Amazon claimed in 2018 to provide free 2-day shipping on more than 100 million items to U.S. Prime members. And though COVID-19 has put these efforts on pause for now, Amazon has moved aggressively since early 2019 to make 1-day Prime shipping the norm, with the number of items eligible for same-day delivery also growing rapidly along the way.
And Prime, as readers know, provides a lot more than just free rapid shipping services. Amazon spent $7.8 billion in 2019 on video and music content in 2019 alone, with a large portion of this spending believed to involve its Prime Video and Prime Music services. Amazon has also bundled everything from Whole Foods discounts to an e-book library to unlimited photo storage into Prime.
As I touched upon a little while comparing Shopify (SHOP) and Amazon, Prime is for all intents irreplicable, for a few reasons:
- Prime's shipping and content services are directly subsidized by a giant base of monthly and annual memberships (more than 150 million globally, with more than 70 million believed to be in the U.S.).
- Indirectly, Prime is also subsidized by the fact that a large portion of orders from Prime members (from all indications, a majority) don't involve direct e-commerce transactions, but rather orders placed with Amazon marketplace sellers, which in turn can be monetized via multiple high-margin revenue streams (i.e., commissions, fulfillment services, ads).
- Prime leans on a massive seller marketplace that (although facing new challenges from the likes of Walmart, Facebook (FB) and Alphabet/Google (GOOGL) ) is for now unmatched.
- Prime also leans on a massive and ever-growing fulfillment and logistics infrastructure that (unlike, say, Walmart's infrastructure) was built from the ground up to support e-commerce. This infrastructure now includes sizable last-mile delivery operations -- operations that could give the still-developing AmazonFresh grocery delivery business a delivery cost advantage relative to a rival such as Walmart, which for now depends heavily on private DoorDash to handle its grocery deliveries.
Walmart's leadership likely knows as well as anyone how difficult (if not impossible) it is to create a true rival to Prime in light of these built-in advantages. Indeed, three years ago, Walmart axed a $49-per-year service (known as ShippingPass) that genuinely tried to compete against Prime, by offering free 2-day shipping on 2 million-plus items available through Walmart's website.
Though cheaper than Prime, ShippingPass didn't come close to matching Prime's product selection, never mind its various non-shipping perks. As a result, Walmart wisely canned ShippingPass and is now instead offering a subscription service that can leverage its main competitive strength against Amazon -- its thousands of physical retail stores, each of which are stocked with a wide selection of groceries and many thousands of other low-cost items -- rather than trying to beat Amazon at its own game.
Walmart shareholders should be pleased with this strategy change, as well as Walmart's broader efforts to drive online transactions involving pickup and deliveries from its bricks-and-mortar stores. But they should also take the many news headlines about Walmart building a true Amazon Prime rival with a grain or two of salt.
Walmart, from all indications, is too smart to head down that road again.
