While everyone is speculating what Amazon will do with Whole Foods, whether changing Whole Food’s model, using their bricks and mortar locations for food delivery, using their stores for fulfillment of Amazon products, extension of Amazon Prime services, or more, it is clear that everyone is excited about the prospect of Amazon in the grocery business and the upcoming clash between Amazon and grocery giant Walmart, who was already making moves to step into Amazon’s e-commerce turf.
By all counts, the Amazon vs. Walmart battle is a clash of commerce titans, and the numbers don’t lie. Walmart is a behemoth, with $482 billion in sales in 2016, generating $27.4 billion in free cash flow, and growing 2.8% from the previous year. Add to its size the vast assets of almost 12,000 stores worldwide, and a growing set of acquisitions including e-commerce upstart Jet.com and the new announced acquisition of men’s clothing upstart Bonobos, and you have a company with scale, efficiency, and some very interesting brands and business models.
Amazon’s numbers are no less impressive: $135 billion in 2016 sales and an incredible 26% revenue growth. A company that started 23 years ago as an online book seller no commands 43% of all online revenue and 53% of new e-commerce growth, according to Slice Intelligence.
But beyond the numbers, there is some very interesting aspects of this matchup that makes us all want to step back and watch, if not wind the clock a little faster to see what happens.
Both companies are absolute operational giants, even pioneers in operational efficiency. They both survive and even thrive in low-margin worlds because they are just that good at supply chain management.
While Walmart pioneered the concept of regional distribution centers and real-time inventory to facilitate original target, Amazon has become the pioneer in logistics in warehouse innovation, including the use of robotics, unique inventory methods, and other innovations, including Amazon’s “Fulfilled by Amazon” (FBA) system that allows them to carry cash-free inventory for third-party fulfillment. The FBA program has seen a 70% growth vendor participation in the last 12 months.
We are certain to see some interesting and beneficial innovations from both companies. One needs no more evidence that to glimpse at Amazon’s numerous patentsfor warehousing and logistics, some of which show their out of the box thinking. How about a beehive-like distribution center and sky warehouse—essentially blimps that would fly above cities and use drones to deliver goods in minutes to your home?
Both companies have not only transformed themselves into retail giants, they have transformed their industries. Walmart literally created the market for rural retail shopping, and placed themselves in a position to dominate that market for decades while growing thousands of stores around the world. Amazon transformed the book industry with its online store, then transformed it a second time with an e-book model that works and keeps customers on their platform, and then transformed it a third time with a self-publishing model that works. Jet.com and its unique pricing model will help Walmart attack the warehouse market with an online model. With Walmart’s acquisition of Bonobos and Amazon’s acquisition of Zappos and new Amazon Prime Wardrobe announcement, they both have sites on transforming the apparel market and many others.
Different Pedigrees; Different Approaches
Despite similarities in intent and operations, both companies are fundamentally different at their very core. While Walmart has a pedigree creating customer experience around their store, attracting shoppers for miles as a destination, Amazon has centered their experience in your home. Just look at Amazon’s Prime Wardrobe, which will let you try on clothes home without paying for them, and return them for free. Walmart is the specialist at the single event, brick and mortar shopping experience, while Amazon leads in facilitating online shopping with a Prime subscription model that is used by a majority of its customers and is only set to expand its offerings in the future.
Although from different backgrounds, both are looking to make inroads into each other’s territory, as Walmart’s Jet.com acquisition and Amazon’s Whole Foods acquisition attest. Kindles in Whole Foods anyone?
Besides operational competencies, the battle between these giants is going to be won with their competency in parsing and understanding vast amounts of data. Both Amazon and Walmart have used data to streamline their supply chains, managing inventory and fulfillment. Walmart is reportedly in the process of building the world’s largest private cloud to analyse sales data in real-time. Amazon, on the other hand, has developed an incredible system for improving customer experience, developing everything from recommendation systems, and anticipatory shipping models to price optimization. A recent survey showed that a majority of Millennials and Gen-xers (my group) are willing to give up personal data in exchange for improved and more personalized experience, fueling this war with their own data.
Markets Will Tumble
The Walmart-Amazon battle has been going on for years, but each has safely been in their own corners. Both have participated in and shaped the music CD distribution market, where Walmart owns 22% of the market to Amazon’s 24%. In the wake of this battle, other markets will certainly be destroyed and rebuilt.
The grocery market, where Walmart gets the bulk of its revenue, will be the first, but will be followed by others, including apparel, furniture, prescription eyewear, meal preparation and deliver. Any of these will be potential areas for conquest, and with their advantages in data and logistics, companies will either be acquired or crushed in the process.
One of the lingering questions is which, if either, can fully open up the market in China. Walmart has 439 stores already and an ownership stake in JD.com, China’s second largest online retailer. To date, Amazon has a tiny share of the market and neither one has shown yet that they can make a significant showing there.
We Will Benefit
No matter what happens, the sure bet is that consumers will benefit from this competitive fight over the coming years. I am confident of this because both companies are experience builders, market expanders, and problem solvers, and fully are vested in logistics optimization and data analytics. Both will focus that effort on creating a profitable grocery business. With a current high number of competitors, and the threat of new competitors such as German-based Lidl entering the US market, they may end of saving the industry from itself, or hastening its fall, whichever your perspective.
Amazon started their journey by taking a fundamentally important immediate, and physical buying experience, buying a book, and turned it into a digital one. Walmart started with a vastly underserved market and sustained a profitable business with incredibly aggressive approach as a low-cost provider while growing into an incredible world-wide presence. This battle, ultimately we will benefit us with an improved customer experience at a lower cost. And watching them get there is going to be interesting.