Earlier this week, Amazon confirmed suspicions that it will be opening a budget-friendly grocery store chain in 2020 to complement the higher-end chain Whole Foods, which the company purchased in 2017 for $13.7 billion. According to multiple outlets, the new grocery store will open first in the Woodland Hills neighborhood of Los Angeles, with plans to expand rapidly to many U.S. cities including Chicago, Philadelphia, and the New York metro area. This news illustrates just how serious Amazon is about claiming a piece of the nearly $800 billion US grocery market.
Take it from Walmart: More Locations Enables Faster Delivery
The top title in U.S. grocery currently belongs to Walmart, whose stronghold on the category is largely maintained by their absolutely massive brick-and-mortar footprint. In fact, we learned at Code Commerce that 90% of the U.S. population lives within ten miles of a Walmart. This staggering figure not only says a lot about the volume of in-store traffic Walmart sees, but it also has huge implications for their ability to warehouse and ship items efficiently.
Today, Walmart has over 2,700 locations listed for online grocery orders, a number that dwarfs Whole Foods, which only opened its 500th store this year. Walmart has also made big strides in recent years to keep up with Amazon’s standards of quick shipping and customer amenities such in-trunk delivery and voice shopping, which is paying off. The company reported a 37% increase in ecommerce sales during Q2 of this year with nearly half of their overall sales coming from grocery.
In early 2019 Walmart started offering a flat-fee grocery delivery service, which at $98 per year undercuts an Amazon Prime subscription by about 15%. Not to be outdone, Amazon announced in October that their rival grocery delivery service Fresh would be free of cost to Prime members (previously, it was an additional $15 a month on top of a Prime subscription).
As of today, online grocery sales only account for about 2% of grocery sales overall. Walmart is wise to lay the groundwork for grocery delivery now, even in its early stages — their expansive footprint puts them in the perfect position to act quickly on consumer demands for grocery delivery if it takes off.
Although Amazon routinely opens new fulfillment centers to maintain their lightning-fast shipping on non-food products, they know will need to purchase more physical grocery stores in order to compete with Walmart.