Walmart’s New Plan to Defeat Amazon

Walmart has achieved widespread dominance in the United States, with 90% of Americans living within 10 miles of one of its 5,212 stores. This presence extends to remote locations like Kodiak, Alaska, and Williston, North Dakota, and even near the Grand Canyon. Globally, Walmart's expansion continues, with most of its 5,700 international stores located in Canada, Asia, Latin America, and Africa. However, this extensive market penetration presents a challenge for a publicly-traded company obligated to maintain indefinite growth. Walmart's "modest" goal of 4% annual growth, on top of its $713 billion revenue last year (which would make it the world's 22nd-largest economy), translates to an additional $28 billion in revenue annually. This means Walmart must constantly generate revenue equivalent to entire major companies just to meet growth expectations. Meanwhile, its primary rival, Amazon, is experiencing significant growth as more shopping shifts online. Amazon's market share in "health and beauty," a historically strong category for Walmart, doubled between 2019 and 2022, leaving Walmart with lower-margin products. The average U.S. household spends $3,000 annually on Amazon, and 70% of adults are Prime members. Amazon has even surpassed Walmart in revenue, prompting questions about Walmart's future. The one major obstacle to Amazon's retail conquest is groceries, a $1 trillion annual market in the U.S. Unlike other retail sectors, the vast majority of grocery shopping still occurs in-person. Walmart is the undisputed leader in groceries, and this stronghold has been difficult for Amazon to penetrate. Amazon's initial foray into groceries with the 2017 acquisition of Whole Foods, providing 456 locations and an affluent customer base, seemed promising. However, subsequent ventures like Amazon Books, Amazon Go convenience stores (featuring "Just Walk Out" technology), and full-size Amazon Fresh supermarkets have largely failed. Amazon Books closed in 2022, and all 57 Amazon Fresh and 15 Amazon Go stores were permanently shuttered earlier this year. It was also revealed that the "Just Walk Out" technology relied heavily on a thousand manual workers in India. After a decade, Amazon's attempt at physical stores, excluding the acquired Whole Foods, has been a complete failure. Whole Foods, while successful, has a natural growth ceiling due to its niche appeal to affluent customers seeking organic and specialty products. Expanding to a wider audience risks alienating its core base. Walmart, conversely, is adapting its strategy. Traditionally focused on low prices, it is now enhancing customer experience. This includes "quiet hours" for sensory-impaired shoppers, wider aisles, upgraded pharmacies, and in-home delivery services for $40/year. Walmart is also expanding its product range to include designer fashion and lower-cost versions of premium electronics like the MacBook Air. Its "Great Value" brand is being redesigned, and a new premium line, "bettergoods," caters to wealthier, health-conscious consumers. This shift is proving successful, with 75% of Walmart's recent growth coming from households earning over $100,000 annually. As inflation and rising costs impact even upper-middle-class households, more consumers are seeking deals, which Walmart provides. For consumers who traditionally avoid Walmart due to ethical concerns or brand perception, the company is finding a new avenue: online delivery. The American Express Platinum card, an $895 luxury credit card, now offers free Walmart+ membership. This seemingly incongruous perk makes sense for affluent customers who value convenience and often have groceries delivered. Walmart+ offers unlimited, same-day grocery deliveries with no fee on orders over $35, and prices are the same as in-store. With Walmart's extensive store network, delivery can be faster than Amazon. Since these customers never step foot in the store, the stigma of the Walmart brand diminishes, especially when Amazon faces similar ethical criticisms. This strategy allows Walmart to simultaneously serve lower-income in-person customers and higher-income online customers using its existing physical infrastructure of 5,000 U.S. stores. This enables Walmart to attract new, affluent customers without losing its current base. Groceries are merely the entry point. The real prize is encouraging these new customers to purchase other non-perishable goods. By using Walmart for grocery delivery, high-income shoppers will increasingly see other needed items on the Walmart app and website, tempting them to buy there, especially to meet the $35 free delivery minimum. Walmart also has a logistical advantage. If a customer orders a coffee machine and fresh produce from Amazon, the items are shipped from different locations (warehouse and Whole Foods), incurring double shipping costs. Walmart, however, can ship all items from one of its 200,000-square-foot supercenters, creating economies of scale crucial for profitability in low-margin grocery delivery, which typically costs $10 per order. If this strategy continues to attract higher-income households, Walmart may finally penetrate the last 10% of America: cities from which it was previously excluded, such as San Francisco, Boston, Seattle, and New York. While building supercenters in dense urban areas like New York is impractical and politically challenging, Walmart could establish fulfillment centers—invisible warehouses—to serve these markets. This would allow Walmart to operate similarly to Amazon, delivering goods