Amazon’s Efforts to Close the Gap in Grocery Spending
Amazon is working to bridge the gap in grocery spending as it competes with Walmart in the market. CEO Andy Jassy has acknowledged that while Amazon has captured a significant share of consumers’ nonperishable grocery spending, it lags behind Walmart in the mass-market perishable groceries category. To address this, Amazon has been testing a new format called Fresh in select locations near Chicago and Southern California, with early results showing promise.
Walmart’s Lead in Food and Beverage Categories
Despite Amazon’s dominance in the overall retail market, it trails behind Walmart in the food and beverage category. According to the “Whole Paycheck Report” by PYMNTS, Walmart’s market share in this category is more than seven times that of Amazon’s. While Amazon generated around $150 billion in retail sales in Q3 2023, Walmart’s sales amounted to $131 billion. This highlights the gap that Amazon is aiming to close.
Leveraging Amazon’s Diverse Portfolio
In its efforts to close the gap in grocery spending, Amazon plans to leverage the diversity of its business segments, including its eCommerce marketplace, Whole Foods brand, and mass-market offerings. CEO Andy Jassy emphasized the importance of better utilizing logistics capabilities to provide a unified shopping experience. This aligns with consumer expectations, as a recent study has shown that a majority of Americans and Australians want to consolidate their grocery shopping into a single everyday app that covers various categories.
The Pickup Opportunity and Walmart’s Approach
Both Amazon and Walmart see significant opportunities in the pickup option. Walmart recognizes the value of multichannel shoppers and has experienced success with its pickup and delivery services. The company reported a 24% year-over-year increase in eCommerce sales in Walmart U.S. and a 16% increase in Sam’s Club U.S. To target higher-income consumers, Walmart has focused on expanding its pickup and delivery services, which have proven to be productive channels for acquiring Walmart+ members.
Amazon’s Path to Challenging Walmart’s Dominance
In its quest to challenge Walmart’s dominance in grocery spending, Amazon is making strides. While Walmart currently has the advantage in mass-market perishable groceries, Amazon’s retooled Fresh format and strategic focus on a unified shopping experience could help narrow the gap. By catering to consumers’ desire for convenience and offering a wider variety of grocery products in one place, Amazon aims to establish itself in the profitable food and beverage category.
Analyst comment
Positive news: Amazon’s efforts to close the gap in grocery spending by reworking its brick-and-mortar strategy and leveraging its diverse portfolio are showing promising early results. By offering a unified shopping experience and catering to consumer expectations, Amazon aims to challenge Walmart’s dominance in the food and beverage category.
As an analyst, I expect that Amazon’s strategic focus on convenience and its wider variety of grocery products will help it gain market share in the food and beverage category, potentially narrowing the gap with Walmart in grocery spending. This could lead to increased competition and innovation in the market.
