Who Will Win Online Grocery Shopping: Amazon or Wal-Mart?

Image source: Amazon.

Two retail giants are introducing shoppers to new retail formats over the coming months. Wal-Mart Stores (NYSE: WMT) just launched its first pair of Pickup and Fuel locations, and Amazon.com (NASDAQ: AMZN) announced plans to open a checkout-free convenience shop.

Wal-Mart designed Pickup and Fuel locations as a place for online shoppers to pick up grocery orders and fill up on gas at the same time. Amazon's futuristic Amazon Go convenience store (coming in 2017) has shoppers scan an app upon entry. Anything they walk out of the store with is charged to their Amazon account.

Amazon's big publicity stunt

It's not clear whether Amazon's "Go" store format is a sign of things to come from Amazon, but it's certainly drawing a lot of attention. How could it not? The entire thing sounds like something out of 2001: A Space Odyssey. At the very least, Amazon Go will get more people to associate Amazon with food and groceries.

Amazon has been slow to roll out its Prime Fresh grocery-delivery service to more markets. While many point to it being held back by infrastructure limitations, the more plausible argument is that people just aren't ready to order their groceries online. At least, not from Amazon. If Amazon saw demand, it would build the refrigerated warehouses it needed. Jeff Bezos has never been shy about spending a lot of money on capital expenses.

The market for groceries and convenience items in the United States is huge -- about $1 trillion. For reference, Amazon's sales in all of North America last year totaled $63.7 billion. Even taking a small percentage of the market would mean a lot to Amazon.

So, Amazon needs to get more people to associate its brand with groceries. Amazon Go may be more of a publicity stunt than a viable nationwide retail concept, but either way, it achieves the goal of getting more people to consider ordering groceries from Amazon.

Wal-Mart is always about one-stop shopping

Contrary to Amazon Go, Wal-Mart's Pickup and Fuel concept seems extremely scalable. Wal-Mart has quickly expanded its online grocery pickup service to 100 markets, adding about 30 markets in the second quarter and about 40 more in the third quarter. It, of course, benefits from its existing Supercenter locations, so the demand for Wal-Mart to enter a market doesn't need to be nearly as great as it does for Amazon.

Pickup and Fuel capitalizes on several of Wal-Mart's strengths. First is its ability to provide convenience. Wal-Mart grew to become the largest grocery in the nation because shoppers can do their grocery shopping and get anything else they need all under one roof. Pickup and Fuel allows customers to fill up on gas while someone loads their car with groceries. Two birds, one stone.

Second, Wal-Mart is able to take advantage of its existing gasoline operations tied to Sam's Club locations. Wal-Mart could even offer the marginally lower price on fuel it offers Sam's Club members for customers picking up orders.

Wal-Mart has a lot of work to do to get people to think of it as a place for online shopping. However, it's in a good position to leverage its strength in groceries to get people to do more shopping on its app or website. That behavior could translate into non-grocery purchases online as well. And customers can pick up those purchases at the same Pickup and Fuel location as their groceries.

Both Wal-Mart and Amazon have a lot of work to do to get shoppers to change their behavior online. Each have their relative strengths, and these new retail formats showcase them. Amazon Go feels more like a publicity grabber to get more people to associate its brand with groceries, but Wal-Mart's Pickup and Fuel is easily scaled and could provide ongoing incentives (gas discounts) for customers to start shopping for groceries on Walmart.com or its app.

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