How Walmart and Amazon Are Transforming Grocery Shopping

Is speedy delivery enough to capture a share of online food and beverage sales?

Is speedy delivery enough to capture a share of online food and beverage sales?

That’s what US retailers are betting on. Just this week, Walmart announced the expansion of its Postmates partnership, and Amazon launched Prime delivery from Whole Foods in its seventh city, Los Angeles.

So what’s driving this grocery delivery competition? 

“Food and beverage is a massive $700 billion category that still sees less than 3% of sales occurring online, lagging virtually every other product category. Heightened competition and increased investment in same-day delivery will only serve to accelerate the channel shift for grocery, bringing tens of billions of dollars online," said Andrew Lipsman, eMarketer principal retail analyst.

Retailers have decided that the missing piece in unlocking food sales online is same-day delivery. Consumers are approaching an inflection point where just a few years ago, there was little interest in same-day delivery. Not many retailers offered it and it came at a premium.

But in a March 2018 survey from Dropoff, the number of US internet users who had used same-day delivery rose significantly in 2018, to 31% from 17% last year. Groceries, were the top category wanted on the same day (64%) as well as the leading category bought that way (19%).

Other than restaurant orders, which often fall outside retail categories, groceries are probably the item most wanted quickly post-purchase. Faster delivery models are attempting to bridge the gap. 

  • Amazon’s two-hour offering is “free” with Prime membership and can be had in a one-hour version for $7.99 and a $35 minimum order.
  • Walmart’s answer is same-day delivery with a $9.95 fee, a $30 minimum order and is positioning the fact that no subscription is needed as a benefit.
  • Meanwhile, Instacart, flush with a new $150 million in funding and still has a delivery contract with Whole Foods, partnered with Sam’s Club in February.

Amazon already had the ecommerce part down. It just needed a supermarket at its disposal, while Walmart (as well as Target) have large grocery businesses and are experimenting and catching up on the digital part.

A March 2018 survey by Coresight Research delved into grocery-shopping behavior and  found Whole Foods and Walmart attract different shoppers, which is not surprising but suggests that it's not a zero sum game for either retailer. Amazon Prime members overindex for shopping at Whole Foods; 29% were Prime members while 15% were not, while Walmart was the only store of the seven studied that had more non-Prime member buyers (65%) than Prime members (57%). 

Looking to the future, Amazon might stand to gain more, though. "Both Amazon and Walmart are poised to capture significant ecommerce market share in the category, but Amazon should disproportionately benefit from each dollar that moves from offline to online given their early investments in logistics and lower risk of cannibalization from brick-and-mortar," said Lipsman.