Walmart vs Amazon, Round 2

In My Humble Opinion
1

Now that Amazon’s acquisition of Whole Foods is official, I thought it would be a good time to revisit this issue, and see if opinions have changed.

I was and still am of the opinion that Walmart has certain strong advantages over Amazon; certainly not enough to guarantee victory, but enough to give the overall advantage to Walmart.

Amazon’s strengths–
[ul]
[li]Well-liked by most people[/li][li]Fewer inherent costs of business[/li][li]Many, many options for many products[/li][li]Experience in filling orders quickly[/li][li]Prime[/li][/ul]

Walmart’s strengths–
[ul]
[li]Innovative[/li][li]Not afraid of making mistakes[/li][li]Surprisingly nimble for a company of that size[/li][li]The biggest and best logistics system in the world, outside of the US government[/li][li]About 4,600 stores in the US (not counting Sam’s Clubs)[/li][li]A huge customer base (140 million customers per week)[/li][li]Can cut costs better than almost anybody else[/li][/ul]

Back when the Amazon-Whole Foods merger was announced, one commentator said something to the effect that “Amazon is trying to become Walmart faster than Walmart can become Amazon.”

Lo and behold–the very first thing that Amazon did, once everything was official, was to slash prices at Whole Foods.

I think that this acquisition is going to be something of a double-edged sword, and unless Amazon is incredibly careful, it’s going to hurt them at least a little bit. After all, one of their greatest strengths up to this point was that they didn’t have the costs associated with running a nation-wide group of physical stores. Whereas those costs are already baked into Walmart’s business model. Amazon thinks that having those 460 stores will make their logistics easier, because now customers have all those physical locations to go to and pick things up. But Walmart has literally 10 times as many stores, and they, too, are leveraging the physical locations to their benefit.

Key points:
#1-- Amazon’s logistics operation is good. But Walmart’s is better.
#2-- With this merger, Amazon is now starting to fight Walmart on Walmart’s home territory. Retail history is littered with the corpses of companies who discovered–too late–that such a move is a highly risky proposition. As a matter of fact, Target is the ONLY company to pull such a move and thrive on the battle.
#3-- Even though Amazon is the king of online retailing, Walmart is the king of retailing in general. Amazon has annual revenue of $136 billion, whereas Walmart has annual revenue of $486 billion. And Walmart is not afraid to spend money when they see a need for it. Their profit has actually shrunk nearly $3 billion over the last couple of years, because of all the spending they’ve been doing to improve the company.

I admit that that Amazon has some impressive strengths. And against any other company, the outcome would be almost a no-brainer. But I think that Walmart has the edge in this battle.

2

You didn’t mention Walmart’s liabilities. Physical stores and large amounts of inventory are both significant liabilities. Needing lots of employees is a liability. Amazon is obviously planning on eventually replacing all their warehouse staff with robots, and they need far less inventory using centralized warehouses. Ultimately, with autonomous delivery vehicles, Amazon could be automated from end to end, needing only a small core staff of managers and programmers to scale to any number of customers. Whatever your opinion is on walmart’s logistics, not needing people to do the logistics beats everything else.

Admittedly, you can’t keep a whole foods open without a lot of human staff, and each store is a liability, same as physical walmart locations. It does seem to be a step in the opposite direction from Amazon’s strengths.

3

Bezos has no intention of running traditional brick and mortar grocery stores-it is a losing proposition. I think he will leverage the supply chain to sell meal kits and online ordering with pick up and delivery options. There is exactly zero chance that he will keep the Whole Foods current business model (traditional retail grocery store) and cut prices to compete with Walmart.

4

I thought this was going to be about sex toys.

5

What exactly is the question? Which one will “win”? What does “win” even mean, here? Or which one we want to win, or which one we think deserves to win?

I think the most likely outcome is that both continue to exist and to be major companies for the foreseeable future.

6

I interpreted the op as thinking that amazon/Bezos will run traditional grocery stores and asking how they will compete. The real answer is that the OP is looking at the situation in a vastly different way than Bezos is. He isn’t going to keep the stores as they are, rather he will change the format. This has the possibility of changing the grocery business in a real way.

7

Certainly both will exist for some time–they’re both too big not to. But that has nothing to do with winning or losing, except in the very broadest sense.

Kroger, Safeway, Albertsons, Sears, Kmart, Montgomery Ward, and several regional chains all went up against Walmart – and every single one of them lost. Now most of them are still in business, but they’ve lost market share, and they were forced to fairly radically adjust certain aspects of their business model in order to survive. But “surviving” is not the same as “winning.”

8

Can you elaborate on this, I know nothing about the history of most of these businesses. You sound like you’re talking about something quite specific rather than just general competition. Is there some strategy that they adopted at some point to try to take market share from Walmart in particular? And could you explain what they got wrong, and just how they changed their business model in the aftermath?

9

Yeah, I don’t get what he’s talking about, either. None of those stores were taking on Walmart. Kmart is probably the only one that was even in the same field, but it wasn’t taking on Walmart.

I don’t even consider Walmart and Amazon to be competing in the same space. Walmart does have an online presence, but its prices are still higher than what you can find on Amazon, and doesn’t allow other sellers beyond those they’ve directly partnered with. Walmart has 2 day shipping for an extra cost, but they no ebooks, audiobooks, or video service. They definitely aren’t hosting websites.

Walmart is still largely a discount store, while Amazon is a web store and multimedia company.

10

I’m almost certain Bezos is going to use the current WFs brick and mortar stores as warehouse/hubs to deliver locally.

I’m a Prime member and they’ve been pushing hard to get me to sign up for “Fresh” lately. They’re still too pricey for me, but I imagine those prices may go down soon.

11

Amazon is the Target of online shopping.

Ebay is the Wal-Mart of online shopping.

Pay more and get exactly what you want = Amazon

Pay a lot less and you may get something dodgy = Wal-Mart

12

If Amazon is successful in whatever they’re going ultimately do with brick-and-mortar WF stores, it’s going to radically change the supermarket landscape.

I’ve been laid up the last month or so. We ordered from Amazon Fresh once. Their prices weren’t radically different from our local store. What I didn’t like was that 1) their variety in certain categories were limited, and 2) they were out of stock on a lot of product, but at least they posted the date the item was to be back in stock.

13

All of those stores are taking on Walmart in the sense that they want to gain market share from them. So far most of them are losing the battle because they can’t get their cost of goods as low as Walmart.

As far as why he is asking about Amazon, well, they just bought Whole Foods so Amazon now has brick and mortar stores that will directly compete with other grocery stores. The question is what Amazon will do to make those stores as competitive and profitable as possible. A lot of people think this means changing the fundamental strategy in selling food.

14

Not really. They cut the prices of some staples like milk and pre-packaged meat products but they are still much higher than any local grocery stores. A friend of my wife works at a Seattle Whole Foods. The thinking of most employees is that Amazon is bought the chain for the grocery distribution side and they are going to close the stores.

15

The price cuts have close to zero to do with Wal-Mart. Amazon may or may not be going up against Wal-Mart… but Whole Foods really isn’t competing in the same space. I mean that literally: they are rarely in close physical proximity, which is critical for grocery shopping. Wal-Mart is disproportionately suburban and rural, and Whole Foods is disproportionately in urban areas and dense inner suburbs. WM’s business model doesn’t play well with high rent, high labor cost urban areas, any more than WF succeeds in areas without a sufficient concentration of high income/education customers.

Whole Foods set their prices at a point that they felt maximized total profitability; they didn’t think price cuts would get them enough new customers to be worth it. Amazon sees that differently, likely because they think that they can move some existing Amazon customers to shop at WF. I think it’s a pretty good bet for them, especially once they get that Prime benefit program going.

(Amazon also loves getting physical access to those high-income urban and inner suburb customers for a host of other reasons, of course.)

16

Maybe Wal-Marts are run better by you, but in this area, they are terrible stores with terrible service and a tendancy to be on the dirty side. I’m pretty sure that Wal-Mart will not beat Amazon in states like New Jersey where they are a distant second to Target.

17

The price cuts can do one useful thing: Put a stake into the stale “Whole Paycheck” joke.

I live near a Whole Foods and shop there a supplement to my Peapod grocery delivery. If Amazon can get a decent delivery program through Whole Foods which the variety of Whole Foods with reasonably priced staples, I’d certainly switch to them. In addition, since most of Whole Foods stores are located in urban areas, they can explore small portions for grocery delivery since many of their customers aren’t the stereotypical family of 4 in a big suburban house.

18

No. This was a PR gimmick which gullible media types fell for:

19

Not sure this is obvious or “eventually” is a little far off, since the warehouses already have robots but they keep hiring people (at regular “events” and open “interviews” on site) and raising the starting pay and benefits. They also keep adding a lot of contractors who deliver in their personal vehicles. Plus the robots will always need people to work on them. At this point a lot of the warehouse workers are hired to basically feed the robots. That part could be automated but they seem far off. They still employ thousands of people moving pallets, scanning and counting picking and packing, and putting stuff in bins and totes. Humans are still moving hundreds of thousands of products per day per center. And they have to constantly reset and do other maintenance on the robots they do have.

20

True. I technically live in a major city but my address is a suburb. I live within 5 miles of 8 grocery store/supermarkets, including Walmart. Whole Foods isn’t one of them. There is one around 35-40 minutes (in good traffic away). I’ve thought about going there, but only for exotic ingredients. When I read the list of price cuts most of the “after” prices were much higher than I’m used to paying. Then again I’m not the sort of person who would pay $20 for avocado toast or some such when I know how to use a toaster and butter knife.