CEO says Walmart’s stores are the answer to Amazon – at least for groceries

Discussion
Photo: Walmart
Jul 16, 2019
George Anderson

When it comes to fulfillment centers to handle online orders, Walmart with 20 warehouses is well behind Amazon’s 100. Walmart, however, has thousands of stores that also serve as distribution centers, particularly for grocery orders, dwarfing Amazon’s Whole Foods locations that offer Prime Now deliveries.

Walmart CEO Doug McMillon told attendees at Fortune’s Brainstorm Tech conference that his company now offers grocery pickup at 3,100 of the chain’s 4,500 stores. Home delivery is available from 1,600 locations.

“One of the realities of fresh and perishable food is if you don’t sell it, you throw it away or give it away,” Mr. McMillon said (via Fortune). “When you have a store environment and you have fresh or perishable food so close to people, those stores then become dual store and pick centers.”

Mr. McMillon’s attendance at the conference in Aspen, CO comes within a week of news that the company’s U.S. e-commerce division is expected to lose $1 billion this year. Walmart has aggressively sought to build up its digital capacity in recent years with a series of acquisitions, including Jet.com, Art.com, Bare Necessities, Bonobos, Eloquii, ModCloth, Moosejaw and Shoes.com.

Walmart, for its part, continues to invest in its online operations despite concerns about losses and even reports it may sell off some of the e-tail businesses it has acquired. In May, the retailer announced the launch of free, next-day shipping on a selection of 220,000 items with no membership fee. Amazon is rapidly expanding its next-day free shipping option for members of Prime. 

DISCUSSION QUESTIONS: Is grocery the key to Walmart’s online fortunes? How will Walmart’s success or failure developing grocery affect the rest of what it is doing online?

Please practice The RetailWire Golden Rule when submitting your comments.
Braintrust
"The right digital presence and customer interactions may just draw more traffic to Walmart stores (via BOPIS). That is where the company could really differentiate itself."
"The challenge has been and will continue to be in the execution at store."
"Mr. McMillon’s strategy leverages core strength in an area where Amazon is weakest."

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16 Comments on "CEO says Walmart’s stores are the answer to Amazon – at least for groceries"


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Zel Bianco
BrainTrust

With the number of stores in the Walmart chain it does make sense. They will, however, need to step up their game in produce. If they do that, I think Walmart has a good shot of being a strong competitor to Amazon.

Chris Petersen, PhD.
BrainTrust

The future is not either/or – it is “multi-channel.” Those that win will leverage a unique combination of their strengths. Walmart’s strength has always been its stores and traffic built upon groceries/consumables. Mr. McMillon’s strategy leverages core strength in an area where Amazon is weakest. While Walmart may have lost $1 billion, they will improve efficiency and proficiency. Losing the billion now is a small price to pay versus losing core customers to Amazon.

Ananda Chakravarty
BrainTrust

Grocery won’t drive online — at least not yet. Online grocery is a tiny part of the market, <5 percent, and Walmart may be able to surpass Amazon here but it will move along at the same or slower pace of growth as overall e-commerce. For a variety of reasons the logistics for grocery are more challenging – including managing cold chain, waste, and regulation to name a few. For Walmart, who has this infrastructure in place already, it does give them a step ahead — but for a tiny online grocery presence that’s not moving exponentially, it won’t be a kingmaker for Walmart.

Lee Peterson
BrainTrust

I’ve long felt that if Bezos had a bullseye in his strategy lair, it’d have Walmart’s grocery business right in the middle of it. $254 billion worth, by the far the world’s largest. And they’ve been protecting it nicely, so far. But in the end, it’s going to be home delivery, quality upgrades and BOPIS that’s going to help them fight the 900-pound gorilla.

Having said that, Amazon has won every game it’s played and when it hasn’t, it has bailed quickly (Fire Phone, Fresh, etc). So as has been said in sports many times, “it ain’t over” by any means and I don’t see them backing off that bullseye any time soon. Au contraire!

Brandon Rael
BrainTrust

While developing a viable and competitive digital presence is key in the long term for Walmart, some short term losses will come. With their significant push into the e-commerce and cross-channel space, Walmart’s $1 billion loss is not that much of a surprise. Scaling up an operation of this magnitude, with all the supporting supply chain infrastructure certainly is going to be a significant expenditure for the big box giant.

There certainly is a long game at play here with the Walmart digital business, and it might take a while to turn a profit. However, the right digital presence and customer interactions may just draw more traffic to the Walmart stores (via BOPIS), and that is where the company could really differentiate itself.

The grocery wars are heating up, and the customer is pushing for more healthier, organic choices, but at more value pricing. Walmart’s flexible fulfillment options will make this space quite interesting in the next few years.

Neil Saunders
BrainTrust

From a profitability perspective, making online grocery work is extremely difficult. With stores it is somewhat easier; without them it is almost impossible – at least if executed on anything near a national basis. Automation may shift the dynamics slightly, but not by much. As such, I believe Walmart has a key advantage in online grocery that Amazon does not yet possess (or only partly possesses with Whole Foods). However, while online grocery is clearly a key battleground, I think it will damage margins and profitability for all players in the sector: in some ways, this is a race to the bottom and only the retailers with the most firepower and resources will be able to compete over the long term. Walmart will be one of them. Amazon will be another.

Richard J. George, Ph.D.
BrainTrust

Walmart locations, number and geographic spread provide a significant advantage that currently Amazon cannot replicate. The challenge has been and will continue to be in the execution at store. If issues of freshness, convenience and service cannot be addressed, the apparent differential advantage can become a real detriment to Walmart. A terrific opportunity to gain on Amazon if the promise becomes a reality.

Gene Detroyer
BrainTrust

The challenge for online grocery is not against Amazon. It is against those who develop efficient local companies to deliver more than boxed products.

Harley Feldman
BrainTrust

Grocery is a category where Walmart can excel vs. Amazon. Fresh produce and meat do not survive long so being close to the online shopper is key, and Walmart has more than 3,000 stores to Amazon’s 100 fulfillment centers.

A lot of learning will accrue to Walmart in the groceries category, lessons that will apply to other categories. The challenge for Walmart is to make the other online categories’ selling and delivery more profitable. Amazon has a huge lead here that will be difficult to overcome.

Cynthia Holcomb
BrainTrust

If grocery is considered Walmart’s online competitive advantage, then Walmart’s fortunes seem to be bleak. Walmart.com carries millions and millions of product SKUs beyond grocery, most with higher profit margins than a loaf of bread. If grocery is the key to beating Amazon, Walmart needs to come up with a better reason for consumers to buy groceries at Walmart.com. Consumers don’t care how many Walmart stores offer grocery pickup, beyond their own store Consumers care about the quality of the groceries they purchase for their family, on or offline. If Walmart is banking on groceries to beat Amazon, Walmart needs to up its game.

Steve Dennis
BrainTrust

It’s not a matter of online or offline it’s about embracing the blur that is shopping today and delivering a harmonized experience. As I write about often, the key is to understand the customer journey and eliminate the discordant notes and amplify places where a brand can be intensely customer relevant and remarkable.

For retailers with vast store networks it’s also about seeing their physical locations as assets rather than liabilities and making the investments strategically to leverage them to competitive advantage as there are many ways brick-and-mortar is superior to a pure e-commerce transaction.

So … grocery is an obvious place for Walmart to lean in as so many categories have a physical component as a differentiating factor in the customer journey.

Ken Wyker
Guest

It does seem like Walmart can leverage their store count to be the convenient, easy choice for customers looking to shop online for groceries. Walmart is also in a unique position in that with e-commerce, they might actually increase their customer base because customers don’t need to enter the store.

Dealing with the big box in-store experience is perceived as a downside of shopping at Walmart that causes some customers to limit their visits to Walmart. If Walmart can connect with those customers by offering a convenient, competitive online grocery experience, they can increase their customer base and visit frequency, both of which will go a long way toward generating profit from their e-commerce activities.

Peter Charness
BrainTrust

Cracking the code for grocery, or frankly anything else, means processing and delivering product (or produce) from the retailer’s best placed location to the customer’s door at the lowest price, since customer’s won’t (explicitly) pay for delivery. Stores are more close to the customer than warehouses, but not as cost effective per pick. The winner will own the lowest cost, fastest customer delivery method.

My belief — hard to beat thousands of stores IF better logistical/picking support is set up in each store, with the associated product in stock logistics to support those online orders 100% fulfilled.

Ken Morris
BrainTrust
Ken Morris
Retail industry thought leader
3 months 1 day ago

Walmart has the advantage over Amazon of numerous physical locations across the country (90% of the population lives within a 10 mile radius of a Walmart store) and needs to find additional ways to enhance its current customers’ online and in-store experiences by leveraging stores as distribution centers to encourage brand loyalty. Grocery is a great place to focus as it caters to the core customer and leverages the customer relationship. But, to succeed, Walmart needs to continue to improve and enhance its grocery quality and assortment to ensure customers return. Walmart should continue to focus on its online and in-store grocery business as that is a core strength for the company and leverages its current customer base.

Kenneth Leung
BrainTrust

Grocery is not the single category for a company like Walmart but a compliment to overall strategy to drive traffic to the stores for those who prefer in-store pickup and a staging hub for deliveries of grocery and non-grocery items.

I think retailers with large real estate footprint will over time need to “rightsize” their real estate for delivery and shopping. The challenge currently is that the retail space square footage cost is high to be used just for distribution for delivery. I do wonder what the math of “revenue per square foot” between a well merchandised store versus a well designed distribution hub looks like.

David Naumann
BrainTrust

Walmart’s greatest online strength over Amazon is its network of stores that double as mini distribution centers. This benefit extends beyond grocery, as it is great advantage as retailers continue to compress the delivery to hours instead of days.

wpDiscuz
Braintrust
"The right digital presence and customer interactions may just draw more traffic to Walmart stores (via BOPIS). That is where the company could really differentiate itself."
"The challenge has been and will continue to be in the execution at store."
"Mr. McMillon’s strategy leverages core strength in an area where Amazon is weakest."

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