In the grocery business, online grocery sales account for only 1% of the $568 billion market.  Both Walmart and Amazon are now competing to grow that number and their percent of the online grocery market share.  Walmart’s CEO Mike Duke announced at Walmart’s annual meeting that Walmart is planning on investing heavily in developing a better logistics infrastructure to support online grocery sales.  Amazon, as reported by Reuters, has purportedly been planning a rollout of an online grocery business for years.

Walmart is testing online grocery retailing at 35 stores, with plans to expand to 15 more.  Groceries account for over half of Walmart’s U.S. sales ($264 billion) in 2012.  Amazon may expand its AmazonFresh grocery service beyond Seattle to San Francisco and Los Angeles later in the year.   In 2012, total online sales were $224 billion according to Forrester Research.  Amazon posted online sales of $61 billion while Walmart’s estimated online sales were $7.7 billion. However, Walmart’s chain of 4,000 stores and 133 distribution centers dwarfs Amazon’s 40 unit warehouse system.  Conversely, Amazon outperforms Walmart in its ability to offer lower online shipping costs.

In the battle for online grocery market share, both Amazon and Walmart have strengths.  Walmart has a great distribution system, a national network of retail locations, and a favorable reputation with customers.  Walmart also has a large stake in one of China’s fastest growing online grocers and can learn from its significant logistics efficiencies.  Walmart will likely use its expansive store presence to create a hybrid model where customers can order online and pick up in a store.

Amazon, is highly regarded as an online retailer.  Amazon has also established a low-cost, two-day distribution system for shelf-stable items like canned goods.  Amazon has a limited physical presence for fast distribution.

While both Walmart and Amazon have a stake in this game, Costco is also a company that could pose a threat in online grocery sales.  Costco is the second largest retailer in the United States with 622 locations and sales of $97 billion in 2012.  Its physical presence in major metropolitan areas could help Costco compete with a hybrid model as well.

Discussion Questions:

1. What are the strengths and weaknesses of Walmart and Amazon in the online grocery business?

2. Which company will win the online grocery war?  Explain your answer.

 

SOURCE: knowledge@wharton, knowledgetoday.wharton.upenn.edu, Posted on June 24, 2013