Wal-Mart has embraced the so-called click-and-collect model, in which shoppers select their food online, and then workers fill the order and have it ready for pickup at a store parking lot.Sandy Huffaker/Bloomberg
For years, Wal-Mart Stores Inc. has followed Amazon.com Inc., putting inventory online and starting its own version of a marketplace where third-party merchants can sell their wares. Now, Amazon is returning the favour.
The e-commerce behemoth is building pickup locations for groceries in Seattle that could open by the end of the year, according to someone familiar with the plans, echoing a strategy embraced by its chief brick-and-mortar rival.
Delivering fresh food is complicated and the one issue keeping Amazon and other tech companies from disrupting the grocery business. Most consumers still get their milk, produce and meat from Wal-Mart, Kroger and other traditional grocers. But while e-commerce has yet to take hold in the United States's $800-billion (U.S.) grocery market, Amazon is betting that could change as millennials accustomed to shopping online enter their prime food-buying years.
"We know their best customers are willing to buy groceries online," says Cowen & Co. analyst John Blackledge. "The onus is on Amazon to deliver because the demand is there."
Amazon began experimenting with the grocery business in 2007 when the company started AmazonFresh in the Seattle area, where the company is based. The service offered doorstep delivery of a limited selection of groceries, saving consumers driving time and the trouble of pushing a shopping cart around a store. The service has slowly expanded to 16 U.S. markets, including Los Angeles, New York and Boston. In June, the company rolled out the service to Prime subscribers in London, the first time it has been offered outside the United States. Amazon currently offers same-day delivery of more than 130,000 items for £7 ($10) a month on top of the cost of Prime.
Recently, AmazonFresh hit a milestone when it stopped losing money in Seattle, according to the person. Earlier this month, the company dropped the price from $299 (U.S.) a year to $15 a month in the United States – $180 annually – which proved immediately popular with shoppers and emboldened Amazon to accelerate its grocery ambitions, the person said.
Wal-Mart and Kroger have embraced the so-called click-and-collect model. Shoppers select their food online, and then workers fill the order and have it ready for pickup in the store parking lot. Besides side-stepping potential spoilage, Wal-Mart is hoping that shoppers will buy other things once they've made it as far as the parking lot. The service is still rolling out nationally, so it's too early to judge its popularity among the targeted demo of millennial mothers.
Amazon, of course, doesn't have much of a physical presence in the United States beyond a few bookstores. So the company is turning to pickup locations for its groceries. In Seattle, Amazon is building facilities that resemble gas stations, where shoppers could pull in and pick up their groceries.
Amazon's push into fresh food is a direct threat to the established players. In Britain, the company has entered a crowded market where Tesco PLC and Web grocer Ocado Group PLC have been engaged in a price war for years. Ocado shares plummeted when Amazon announced its British plans. In the United States, the main tussle will play out between Amazon and Wal-Mart, which is the country's largest grocer, generates more than half its sales from selling food and uses cheap goods to lure customers to its stores.
Time and again, Amazon has shown itself willing to absorb losses while it builds a commanding market share. In groceries, the company is willing to break even in an effort to persuade shoppers to visit the site more often, one of the people said.
The big question is whether a sizable numbers of Americans will be prepared to purchase fresh food online, sight unseen. For many people, there's no substitute for personally assessing the ripeness of an avocado or the thickness of a steak. Wal-Mart and other traditional grocers are spending billions to improve the shopping experience and doubling down on prepared meals and private label products you can't get anywhere else. "There's still going to be a place for stores that have a good selection and provide that experience," industry consultant Roger Davidson says.