Walmart and Uber Team Up to Take on Amazon

After a sluggish start, the online grocery wars are finally heating up. When (NASDAQ: AMZN) purchased Whole Foods, it was assumed both would have the scale to take on Walmart (NYSE: WMT) and change the entire grocery industry via online delivery. Amazon has succeeded on the first metric: Last year, its online grocery market share doubled Walmart's. To date, however, the combination has not been the disruptive force many expected.

Walmart's newest move could win it significantly higher market share in the online grocery market. After partnering with ridesharing services like Lyft and Uber last year for online delivery, Walmart recently announced it would roll out its service to 100 additional cities this year, up from six cities. According to the retailer, more than 40% of U.S. households will be within Walmart's new delivery radius.

Walmart's approach vs. Amazon's: speed vs. control

The biggest advantage of Walmart's plan to outsource the crucial last-mile delivery to Uber and Lyft is that it's fast and cheap. In the short run, this will allow the company to quickly scale, which is apparent when compared to Amazon's Whole Food pilot delivery service. As previously mentioned, Walmart is now rolling out its service to 100 metro areas, up from six, while Amazon/Whole Foods is now working on two-hour delivery in five to six areas.

However, there is a possible cost associated with Walmart's approach. By relying on a third-party supplier for delivery, Walmart is tethered to the success (or failure) of that company. Uber presents additional risks considering its record of scandals and the fact it isn't a profitable entity. Last year Uber had a funding down-round, taking money from SoftBank at a valuation of $48 billion; Uber was valued at $70 billion in the prior funding round.

Amazon is moving slower on its rollout, apparently taking its time to control and perfect the user experience. However, if Amazon is good at anything, it's logistics and the ability to quickly scale. It's likely Walmart's announcements will light a fire under the competitive Jeff Bezos; look for further announcements from Amazon regarding its online grocery delivery.

Is online grocery delivery disruptive or complementary?

The potential losers here are pure-play grocers without the scale and financial wherewithal to bring a cohesive online shopping experience to market. Although Kroger (NYSE: KR) is one of the larger grocers, it would be difficult for the company to build out a fully integrated contending option. The company does have its ClickList Pickup service, but Kroger should reach out to Uber or Lyft to design a program similar to Walmart's, if only to prevent Walmart from seeking an exclusive arrangement.

However, let's not be too rash in expecting online delivery to be the silver bullet of disruption -- grocer-agnostic online delivery companies like Instacart have existed for years without disrupting the grocery shopping experience. Substitute services like meal kits have also struggled, with publicly traded Blue Apron now trading approximately 80% below its 2017 IPO price.

My opinion is that food selection, particularly with fruits and vegetables, is a more-powerful barrier to change than disruption-focused analysts care to admit. The grocery industry is big enough to accommodate those who care to focus on convenience and will shop online, and those who want to pick their own groceries and enjoy the shopping experience. Walmart should win online market share with this move, but online grocery delivery will not be the disruptive force many think ... at least not at this point.

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John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Jamal Carnette, CFA owns shares of Amazon. The Motley Fool owns shares of and recommends Amazon. The Motley Fool has a disclosure policy.