Is Amazon About To Start A Food Fight With Walmart Over Physical Stores?

Amazon Fresh Prime

Just as Amazon finally caught up to Walmart in the battle for share of total U.S. retail sales, the dominant digital retailer looks to be aiming to close the last — and only — major category where it lags behind Walmart: food and beverage.

At last count, PYMNTS data showed that the “food fight” between the two titans was a conspicuous mismatch, with Walmart’s $245 billion and 19.2 percent share of the category in 2020 holding a notable 10x lead over Amazon’s $24.3 billion and 1.9 percent share. 

Put another way, groceries are Walmart’s single largest revenue driver, accounting for 56 percent of its domestic sales last year, per PYMNTS data. In total share terms, food and beverage is Amazon’s smallest category, and second smallest by revenue ahead of its $12 billion auto parts business, which also trails Walmart’s share but by a much smaller margin.

That said, PYMNTS data shows that Walmart has not been able to increase its share of food and beverage either, and has been treading water at roughly 19 percent since at least 2014.

Of course, if you consider only Amazon’s eCommerce food sales, its share jumps to 31 percent and accounts for about one-third of the category total. But even so, the remaining two-thirds of its food sales currently come from its Whole Foods unit, the chain of 500 upscale physical locations that it bought in 2017 for $13.7 billion to boost its presence in the highly competitive grocery industry.

Fast-Forward Four Years

According to PYMNTS research, while Amazon’s acquisition of Whole Foods has permitted the eCommerce leader to get a foothold in the market, it has so far failed to expand its share in groceries, and remains far away from Walmart.

It is against this backdrop, and amid the surging demand and changing buying habits brought on by the pandemic last year, that Amazon began to open a tiny test of 10 new Amazon Fresh physical locations in Chicago and Los Angeles last summer.

“Today, we’re announcing the Amazon Fresh grocery store — a new grocery store designed from the ground up to offer a seamless grocery shopping experience, whether customers are shopping in-store or online,” stated the company’s grand opening announcement. “We’ve taken our decades of operations experience to deliver consistently low prices for all, and FREE same-day delivery for Prime members.”

And now, reports from Bloomberg suggest that Amazon is in the process of quadrupling that initial footprint, and is looking to add at least 28 more [stores] from Philadelphia to the Sacramento suburbs. “An Amazon spokesperson confirmed the location of five future stores, but declined to comment on the rest of the locations identified by Bloomberg from planning and permitting documents, state licensing rolls and news reports.”

When asked by PYMNTS to confirm its plans and intentions for the addition of two dozen other Fresh stores, Amazon Public Relations Manager Laura Hayes said in an email that the company “doesn’t comment on rumors or speculation.”

What’s Known for Sure

To be sure, Amazon has a long history of testing out new business strategies and either scaling them up or shutting them down, and the expansion of Fresh clearly follows that business model.

There’s also the fact that last October, Amazon took what amounts to a 15 percent or $96 million stake in SpartanNash, a publicly-traded Grand Rapids, Michigan-based food distributor and retailer with an existing footprint of 150 of its own stores, as well as accounts with several hundred other military base commissaries and exchange stores in 39 states. 

Another dynamic influencing the current calculus of adding a second chain of physical stores is the large amount of available retail space, combined with mall owners’ desire to make deals and lease out — especially to food-based anchor tenants. While it seems those two avenues alone would make it less expensive to add stores, the existing grocery business is highly competitive and not exactly under-served. For example, top-ranked Kroger sold 25 percent more groceries in the fourth quarter than Amazon did all year, while Walmart has an existing footprint of more than 5,000 U.S. stores to contend with.

Finally, the rise of Amazon Fresh also comes just as ALDI, another low-cost upstart, officially unveiled plans last month to become a “top three” supermarket contender. By adding 100 new stores this year and also doubling its eCommerce offerings, the Batavia, Illinois-based food retailer said its store expansion will focus on Arizona, California, Florida and the Northeast, leaving the company with more than 2,000 stores in 37 states.