Amazon Just Ceded This Massive Market to Walmart

Motley Fool2023-02-13

There's no question that Amazon has changed the game in retail.With a commitment to wide selection, fast delivery, and free returns, the company has made online shopping automatic for many Americans ...

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5D1T2
2023-02-13
5D1T2
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It may make sense for the company's bottom line, but Amazon is significantly scaling back its ambitions in the massive grocery market by doing so.And Amazon's top competitor didn't hesitate to point it out.That Fresh $150 free delivery minimum is looking pretty stale right about now. 😵‍💫 pic.twitter.com/q8EVmYa6w2The Walmart+ membership program still offers free delivery with a $35 minimum as well as free pickup of online orders at thousands of stores. Over the last decade, Walmart has invested billions of dollars in building out online pickup stations, and the move has paid off, driving e-commerce growth and in-store traffic.A competitive disadvantageWhile Amazon has mastered general e-commerce delivery, groceries are a different beast. They require refrigerated trucks, fast delivery, and for customers generally to be home to receive the order.Competing against brick-and-mortar stores like Walmart, Costco, and Target that already have that infrastructure in their stores as well as the ability to offer in-store pickup puts Amazon at a competitive disadvantage.It's more cost-effective to sell groceries in-store than with delivery, and delivering groceries is significantly more expensive than ordinary e-commerce due to the speed required and the need for refrigerated vehicles. Additionally, when it makes deliveries, Amazon pays for the labor that customers take on themselves when they shop in-store.CEO Andy Jassy acknowledged as much on the recent earnings call, saying of its grocery business: \"It doesn't have a big market segment share in perishables. And if you really want to have significant market segment share in perishables, you typically need physical stores.\"By raising the free order minimum to $150, Amazon is admitting that it can't make money on smaller orders without a delivery fee and it's no longer interested in subsidizing them in order to grow the overall business.Another step back for AmazonIn addition to raising the order minimum for Fresh deliveries, Amazon is also closing some of its Amazon Fresh supermarkets and Amazon Go convenience stores. The company didn't say how many stores it was closing on the call but said it was taking a $720 million impairment charge for the closures, implying a significant number.Jassy said he continues to see a significant opportunity in grocery, and it's clear why Amazon would want a piece of it due to its size and the shopping frequency it commands.However, Amazon has already had several false starts in grocery. Fresh has been around for 16 years. The company acquired Whole Foods in 2017, which did not lead to the broader disruption that analysts expected, and the Fresh stores now look like a failure as the company is pulling back after opening just 44 of them.If Amazon was going to break into the grocery market, it probably would have happened already, and the company's newfound focus on the bottom line makes it even less likely now. If it couldn't succeed with a free order minimum of $35, then why would it do so with a $150 order minimum?It's a win for Walmart and the other brick-and-mortar grocers, and a reminder that Amazon is running out of ways to grow, despite comments otherwise. Focusing on the bottom line makes sense, but after a dismal fourth-quarter earnings report and setbacks like Fresh, investors need to reset their expectations for Amazon. This is no longer the breathless disruptor it was long seen as and its high-growth days are likely behind it.There's still upside in the stock if it can grow the bottom line, but the process playing out in areas like Fresh shows that's going to be harder to do than the market thinks.","kind":"highlight","is_publish_news":true,"is_publish_highlight":true,"is_publish_live":false,"is_publish_wemedia":null,"editions":null,"column":"","sentiment":"0","news_tag":"","news_rank":0,"symbols":[],"gpt_button":1},"commentList":[{"id":9954844876,"gmtCreate":1676273940095,"gmtModify":1676273943633,"author":{"id":"3569971237956537","authorId":"3569971237956537","name":"5D1T2","avatar":"https://static.tigerbbs.com/4337cbcb700e1df3423e15a36e4d89b2","vip":1,"crmLevel":2,"crmLevelSwitch":0,"idStr":"3569971237956537","authorIdStr":"3569971237956537"},"htmlText":"Ok","listText":"Ok","text":"Ok","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":0,"commentSize":0,"repostSize":0,"link":"https://ttm.financial/post/9954844876","repostId":2310964924,"repostType":2,"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"langContent":"EN"}],"isCommentEnd":false,"newsSizeData":{"likeSize":33,"commentSize":1,"repostSize":0,"favoriteSize":0,"likeStatus":false,"favoriteStatus":false},"APP":{"userAgent":"Mozilla/5.0 AppleWebKit/537.36 (KHTML, like Gecko; compatible; ClaudeBot/1.0; +claudebot@anthropic.com)","isDev":false,"isTTM":true,"deviceId":"web-server-community-laohu8-v3","version":"4.29.3","shortVersion":"4.29.3","platform":"web","vendor":"web","appName":"ttm","isIOS":false,"isAndroid":false,"isTiger":false,"isTHS":false,"isWeiXin":false,"isWeiXinMini":false,"isWeiBo":false,"isQQ":false,"isBaiduSwan":false,"isBaiduBox":false,"isDingTalk":false,"isToutiao":false,"isOnePlus":false,"isHuaWei":false,"isXiaomi":false,"isXiaomiWebView":false,"isOppo":false,"isVivo":false,"isSamsung":false,"isMobile":false},"href":"/m/news/2310964924"}