Walmart Inc. (WMT), in a head to head battle with Amazon.com Inc. (AMZN) over who will dominate the retail space, is outgunning the Seattle-based e-retailer and its Whole Foods unit in a burgeoning $35 billion market called click-and-collect, which includes grocery pickup shopping. This hybrid of online and physical shopping is a model that’s well-suited for Walmart, which has been able to scale up quickly and grab market share ahead of Amazon, according to a recent Bloomberg column.
Walmart Flexes Its Muscles
- Retailer to roll out grocery pickup in 3,100 stores by year-end
- Curbside pickup to contribute between 0.9% and 1.3% to projected 2.8% comparable sales growth in 2019
- Net promoter score, a measure of customer satisfaction, is increasing and above-average for pickup services
Source: Cowen & Co., per Bloomberg
Curbside Grocery Market to Hit $35 Billion in 2020
While Amazon has been crushing rivals across markets in key areas like high-margin home goods, private label brands, fast-speed delivery, and AI-driven hardware and software, Bloomberg columnist Sarah Halzack argues that the tech giant’s strategy “looks much fuzzier” in the burgeoning click-and-collect market. Amazon’s lag behind retailers like Walmart could prove costly for Bezos’ “everything store," she argues.
Analysts at Cowen & Co. estimate that curbside grocery pickup will generate $35 billion in sales in the U.S. in 2020 as retailers continue to roll out of the service. Walmart's grocery pickup program is currently available at about 2,100 stores and will expand by the end of the fiscal year to a projected 3,100 stores. Competitor Target Corp.’s (TGT) Drive Up service is now offered at about 1,000 stores, with the retailer planning to roll out the service at all 1,850 of its stores by the end of 2019. Both traditional brick-and-mortar companies say that their net promoter scores, which serves as an important measure of customer satisfaction, are above average for pickup services, and only increasing with click-and-collect.
Cowen notes that Walmart’s grocery pickup is contributing significantly to the retailer’s overall U.S. comparable sales growth. They foresee Walmart’s U.S. comparable sales increasing 2.8% for the current fiscal year from the prior year, with the company’s grocery pickup service accounting for between 0.9% and 1.3% of that growth.
Multi-Channel Strategy Differs at Top Retailers
Meanwhile, Amazon, which took its first major stride into the traditional retail space in 2017 with the purchase of organic foods grocer Whole Foods Market Inc. for $13.7 billion, has also invested in its hybrid digital-physical shopping strategy. Now geared with hundreds of physical stores, Amazon has started to roll out click-and-collect services in 22 cities for Whole Foods products. Additionally, the firm has two locations of AmazonFresh Pickup in Seattle, which serves as a drive-up spot for grocery pickup. Outside of grocery, the company has a “limited number” of pickup centers and lockers, yet it lacks a “cohesive strategy that can ramp up quickly nationwide,” per Halzack.
Ultimately, despite Amazon’s deep pockets and massive scale, retailers like Walmart and Target, who already have the infrastructure for an multi-channel digital-physical service, have a competitive advantage. Amazon faces a greater hurdle in turning a profit for its click-and-collect services given it has to build up its pickup locations from the ground up, or through a buyout strategy.
It’s important to note that Walmart is creeping up on Amazon in several key grocery areas. Per Supermarket News, citing a recent Deutsche Bank Securities report, Walmart is posed to also overtake Amazon in the broader area of online grocery sales after a handful of major investments in areas like pickup and delivery services.
“Given the pace of disruption in the food retail landscape and our framework that the top players will reap the benefits of industry consolidation and increasing adoption of online grocery, we believe Walmart is best-positioned to continue to take both mind and market share going forward,” wrote Deutsche Bank analyst Paul Trussell in the note on Walmart titled “Flexing Its Muscles.”
While click-and-collect is currently booming, the Bloomberg columnist points out that the e-commerce leader could be playing the long-game, betting instead on a more efficient, tech-driven model of delivery which employs driverless cars, drones and smart-home entry systems that make doorstep delivery. In these markets, Amazon is already a pioneer, seeking to offer more economical and convenient options for shoppers. For the time being however, the company should be wary of losing out on sales from trending click-and-collect services, as it risks giving away an opportunity for rivals to generate digital loyalty.