The clash has been long awaited. For years, Amazon and Wal-Mart have stood in opposition to one another, vying to become consumers’ preferred destination for virtually any and all retail needs.
With the announcement that Amazon will acquire Whole Foods and its 400+ supermarkets, the battle between the two retailers has reached a new peak.
Needing to make inroads into the brick and mortar retail space, Amazon’s nearly $14 billion acquisition—16x more than it has ever paid for a company previously—makes for quite the entrance. The move signifies their most ambitious step in creating a physical footprint, having only recently experimented with physical bookstores.
Amazon and Wal-Mart, in their respective quests to sell just about everything to everyone, are now duking it out in the trenches of omnichannel retail. And the story couldn’t have been written any better.
Retail will be won in the middle
Wal-Mart’s decades of retail experience has left it in the incumbent position of consumers’ go-to option for inexpensive clothing, home goods and, recently, groceries. The company’s 5,000 US storefronts places them conveniently within reach of millions of American suburbanites.
But with consumer expectations quickly acclimating to the convenience of online shopping, Wal-Mart has been forced to diversify its brick-and-mortar approach. Its commitment to a complementary e-commerce experience reached a climax last year with a $3.3 billion acquisition of Jet.com, an online retail startup touted as a potential Amazon competitor.
Amazon, approaching from the e-commerce side, has been largely responsible for raising the bar of consumer expectations for price and convenience. Its Prime offering has become the new standard for reasonable prices coupled with rapid delivery.
The only piece lacking from Amazon’s retail approach has been a significant brick-and-mortar presence—and $14 billion later, we have the Whole Foods acquisition.
It’s become evident that the winning retail experience won’t be pure-play e-commerce or brick and mortar, but a mixture of the two. Assuming the two retail giants are now competing on an even playing field, with each having bought their way into a digital or physical retail footprint, the omnichannel retail climate is quickly heating up.
The right location, location, location.
With a 50-year head start, Wal-Mart has the advantage in terms of sheer number of stores, outnumbering Whole Foods 10:1. The strategic location of the stores, however, likely does not work in Wal-Mart’s favor. The Walton family retailer has famously avoided expensive urban locations in favor of suburban areas. When it comes to acquiring first-mover customers in the online retail space, particularly in the grocery segment, Wal-Mart is far more likely to find them in metropolitan areas.
With Whole Foods, Amazon has acquired retail space in densely populated urban areas, closer to a tech-savvy population familiar with higher-end goods and more likely to become Prime members.
The new rules of retail
In addition to having a location advantage, Whole Foods has already made headway in the same-day delivery space with a $36 million investment in Instacart last year. Amazon can continue to play to its strength as it has tapped into a consumer base already acquainted with having items delivered on-demand.
Wal-Mart’s focus on the customer experience has included in-store and kiosk pickup options and a recent experimentation with employees delivering items on their way home from work. But without a legitimate, direct-to-doorstep delivery option, these efforts are a futile attempt to compete with Amazon’s scaled same-day home delivery network. Leveraging its retail locations to offer a delivery option will close the gap in the shopping experience—a necessary step in providing consumers with the choice that’s come to define the shopping experience.
With its acquisition of Jet.com, Wal-Mart has the expertise to offer order online, pick up in store, but, like many retailers, the inability to offer a scalable delivery solution. Rather than accrue the costs and time investment of finding delivery drivers and developing a transportation logistics system, Wal-Mart may find itself in need to redesign and scale its own fleet to support same day delivery or outsource to a third party.
Price, convenience, and the need for both
Jeff Bezos is famous for focusing not on what will change for businesses in the next ten years, but instead to “ask yourself what won’t change, and then put all your energy and effort into those things.”
In retail, that seems to be the pairing of price and convenience. So while Wal-Mart has built an empire on affordable prices, Amazon may have found itself in a position to offer choice and rapid delivery at a slightly higher clip.
Consumers can look forward to the fact that this retail battle is far from over. Amazon has a lot to learn, as running a scaled grocery operation requires a different set of skills than an online marketplace, and Wal-Mart has proven time and again that they’re committed to adapting to the ever-changing retail experience.
The seismic shift towards convenience and the shopping experience has put consumers back in the driver’s seat—and we can all be excited for the road ahead.
Deliv provides same-day delivery services for e-commerce and store-based retailers.