Fortune writes about how, while “Amazon will soon top Walmart in overall sales,” it continues to lag in the critical area of grocery sales.
Not that Amazon is a laggard: “After announcing blockbuster financial results from the holiday quarter and its largest operating profit ever last week, Amazon is now worth nearly $1.8 trillion. The tech giant’s market value is four times higher than Walmart and, depending on what Walmart reveals when it reports its own fourth-quarter results on February 20, Amazon may have just topped Walmart in quarterly sales for the first time ever too. (Even if Amazon doesn’t now, it will likely surpass Walmart in overall sales sometime over the next year.)”
And, Amazon certainly is ahead of Walmart in other areas: “There’s a lot that Walmart, in turn, admires in Amazon. Walmart surely wishes it had something close to Amazon’s giant AWS cloud computing business, which topped $90 billion in 2023 revenue and is one of the tech giant’s most profitable segments. AWS is also a major reason why investors value Amazon like a tech stock and not a retail stock.” Fortune also notes that Amazon is way ahead of Walmart when it comes to both online advertising revenues and its third-party Marketplace business.
But then there’s grocery. Always grocery. Which to a great extent has been a nut that Amazon has had trouble cracking.
Amazon’s belief that it needed to be in the grocery business was keyed to the notion that it couldn’t really be “the everything store” it claimed to be unless it was selling “the items that customers buy most frequently: perishable groceries and consumer-packaged goods … Frequency of purchase breeds customer loyalty. And customer loyalty breeds high lifetime value for a corporation. Selling groceries at good prices also can make a retail business more recession-proof. When the economy sags, people cut back on nice-to-haves and prioritize spending on what they must have. Walmart understood this and expanded into groceries decades ago. Now it accounts for nearly 30% of all U.S. grocery sales, including revenue from its subsidiary Sam’s Club.
“But one of the main challenges for Amazon, which accounts for just 3% of U.S. grocery sales, in selling groceries and other CPG products online is that they typically have thin profit margins. Add shipping or delivery costs to the equation, and it’s almost impossible to generate a profit unless it’s a very large order.”
Fortune points out that while Amazon has closed about a quarter of its Amazon Go checkout-free convenience stores, and paused the rollout of new Amazon Fresh stores while it worked on a more effective format, it “believes the continued buildout of its same-day and overnight delivery will make the sale of low-priced packaged foods more affordable. Making money on a single six-pack of Coke or bottle of shampoo or Clorox if you have to ship it a long distance is nearly impossible. But if it’s stored in a warehouse close to a dense population of customers, the calculus might change.”
KC’s View:
While Amazon is seeing growth in its Whole Foods business, it has. along way to go in virtually every other area of its physical grocery store business – it has about three percent of the US grocery business, while Walmart has 10 times that. And Walmart is once again growing its physical store fleet, which means that it is doubling down on its proximity advantage.
I still think that at some point, Amazon’s tolerance for pain in this specific area of its business will get to the point where leadership will decide to double-down on their advantage – they’re way better in e-commerce, and can use Prime and Subscribe & Save to grow its share of the grocery market using those tools. Amazon shouldn’t want to be a better Walmart. It should just want to be a better Amazon.
Use Whole Foods to experiment with new ideas. License groundbreaking technology to other retailers. And do what it traditionally has done best.
Then again, what do I know? I’m just a poor country pundit.
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