Amazon is quietly closing in on Walmart’s key competitive edge

One of the most fascinating foot races in today’s market is undoubtedly the one between Amazon  (AMZN)  and Walmart  (WMT)

It may be more aptly called an all-out sprint, as each retailer works tirelessly to outdo one another in all the key areas customers prize. That includes fulfillment and delivery times, where shoppers increasingly expect lightning quick next-day delivery (at least,) thanks to the strides Amazon has made. Walmart quickly followed suit.

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The two have also been working to expand and upkeep their inventory, which can be a delicate balancing act as an online retailer. Too much inventory and you risk overloading your liabilities, too little and you risk disappointing needy customers. 

But one place where Walmart has been consistently ahead of Amazon has been with grocery, specifically with respect to fresh groceries. This has been the case for as long as the two have been in competition, even after Amazon’s acquisition of Whole Foods Market in 2017. 

Walmart dominates the U.S. grocery market. With at least one store location within 90% of the U.S. population and consistently low prices, it has reigned supreme as the largest food retailer in the country thanks to its national reach. 

Amazon slowly chips away at grocery fulfillment

Of course, Walmart’s key advantage here is that it operates over 10,000 physical stores which can easily be reached by the general populace, while Amazon is mostly an online retailer. And while you can easily buy dog food or nonperishable canned goods from an online shop, procuring deli meat or fresh produce can get quite a bit tougher without refrigeration or same-day delivery.

But Amazon hasn’t taken this as a sign of defeat. It’s been working overtime to develop ways for customers to stay within its ecosystem and still get their fresh foods through Amazon. This has been met with varying degrees of success; Amazon Fresh, the retailer’s take on brick-and-mortar grocery, has been met with tepid reception and is still limited to just a handful of metropolitan areas.

Interior of an Amazon Fresh supermarket, London. (Photo by: Alex Segre/UCG/Universal Images Group via Getty Images)

UCG/Getty Images

But the company is taking notes from what’s working (and what isn’t) and is iterating. 

“If you want to serve as many grocery needs as we do, you have to have a mass physical presence, and that’s what we’ve been trying to do with Fresh over several years,” Amazon CEO Andy Jassy said during the Q4 earnings call in February. 

“We’ve been testing a V2 of our Fresh format in a few locations near Chicago, in a few locations in Southern California. It’s very early. It’s just a few months in, but the results thus far are very promising and on almost every dimension. And so, we need to see it for a little bit longer time, but the results appear like we have something that’s resonating.”

Amazon insists it’s still in the early development phase and is very mum on the details surrounding the stores as it inevitably works to remove kinks and inefficiencies before a nationwide rollout. Still, a more robust fresh grocery development is something competitors like Walmart are no doubt watching closely as it also works to improve its in-store experiences.

As it works to develop its fresh food fulfillment capabilities, Amazon is already seeing success with its nonperishable categories. 

“On grocery, we’re pleased with the progress we’re making there,” Jassy said. “The first [segment] is nonperishables where these are things like consumables and canned goods and pet food and health and beauty products and pharmaceutical…It’s a big business and it’s continuing to grow at a very healthy clip, and we’re really pleased with that business. And it’s really the way the most mass merchandise – mass merchandisers got into the grocery business a few decades ago. So, that continues to grow at a very healthy clip.”

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