Who's Going to Deliver Your Groceries: Walmart, Amazon, or ...?

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Walmart delivery
Walmart
Short on milk, toilet paper, lettuce, and pasta sauce? Relax. Your groceries will be delivered to your front door shortly -- and you might be surprised by the company logo on your delivery person's shirt.

Centralized grocery delivery makes a lot of sense. It saves shoppers more than just time and gas-money. Moving groceries from stores to multiple customers' refrigerators in the most fuel-efficient manner a computer can devise can cut carbon emissions by as much as 90 percent, compared to the way we ordinarily shop for our celery.

But enough about the environment and consumer convenience. More companies are getting behind grocery delivery because it makes good business sense as well.

Walmart Delivers

Over in the United Kingdom, for example, Walmart (WMT) owns a subsidiary called Asda that has rolled out the second-largest grocery delivery business in that nation. It's working so well for them that in the U.S., Walmart has begun testing a similar service in San Francisco and San Jose, Calif.

Using its existing big-box stores as ad hoc warehouse centers, the company's "Walmart To Go" service delivers groceries to surrounding locales, fulfilling orders placed on its website.

Having proven the concept (Walmart's been running its test program since 2011), the company's now biding its time before it rolls out the program in a big way.

As Walmart's Global e-Commerce President Neil Ashe recently explained, the concept isn't quite ready for prime time because the U.S doesn't have the quite the level of customer "density" that helped Walmart build a delivery service in the U.K.

So Walmart is waiting for its retailing rivals to blaze the trail and help popularize the grocery-delivery concept. After that, it won't be long before Walmart is delivering groceries to your front door.

Please, I insist! After you...

That time may not be far off.

Upscale supermarket Harris Teeter (HTSI) -- soon to be acquired by Kroger (KR) -- is doing its darnedest to get shoppers off the fence, over the hurdle of fearing high delivery costs, and onto the grocery delivery train.

In contrast to more established grocery delivery services such as Peapod, which charges $6.95 and up (depending on the size of an order), and Walmart, which charges $5 and up , Harris' "Express Lane" charges just one flat rate of $4.95 per delivery -- no order too small.

Harris, of course, doesn't serve a whole lot of markets right now -- just eight states and the District of Columbia. So you really have to be in the vicinity of one of its few stores to use Express Lane.

In contrast, one retailer of similar size to Walmart now entering the home grocery delivery game is Amazon.com.

Customers Who Shopped for Tomatoes Also Bought ...

Last month, Amazon confirmed that it will soon expand its AmazonFresh grocery delivery service outside the company's home city of Seattle.

With five years' experience running a grocery delivery biz, and many more years than that honing its skills and building warehouses for delivery in general, Amazon thinks it's finally ready to start going head-to-head with the competition on .

The company launched AmazonFresh in Los Angeles just a few weeks ago, and could expand to San Francisco as early as later this year.

Next year, rumor has it, the company could take the rest of the country by storm -- opening AmazonFresh for business in as many as 20 other cities, and with plans to expand into another 20 soon after.

Why so fast, and why so big? It's simple, really. Amazon runs on operating margins of barely 1 percent -- one-sixth the size of Walmart's. As such, the company needs vast numbers of transactions to produce appreciable earnings from all those penny-on-the-dollar profits. Amazon does $64 billion in business a year already, but the grocery business in the U.S. is nearly nine times bigger than that -- $568 billion a year. It's tailor-made for a "we make it up on volume" company like Amazon.

As a bonus, added profits from grocery sales could help to finance the construction of more widely distributed warehouses around the country (which, since it's going to have to collect sales taxes everywhere soon, is clearly the way to go for Amazon). This, in turn, will shorten distances, improve delivery times, and lower delivery costs for the other products Amazon sells -- improving its advantages over rival online sellers like eBay (EBAY) and Overstock.com (OSTK).

In short, delivering groceries is a win-win business for Amazon -- and soon, it'll be a winning proposition for more grocery shoppers, too.

Motley Fool contributor Rich Smith has no position in any stocks mentioned, but he is looking forward to using AmazonFresh with Amazon Prime free delivery (fingers crossed). The Motley Fool recommends eBay. The Motley Fool owns shares of eBay.



Update: A previous version of this article noted that Harris Teeter was being pursued for acquisition by private equity firm Cerberus Capital. News broke later that the grocer will be purchased by Kroger.

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donut999

A little deja vu? This was tried ? years ago. Of course that was by independents who had only the revenue stream only from the delivery fees. Could work today with a Wal Mart.

July 09 2013 at 4:18 PM Report abuse rate up rate down Reply
tobiaseftobias

I would liker to learn what is going to investments in for Adults in their
70es & 90ies

July 09 2013 at 3:16 PM Report abuse rate up rate down Reply
1 reply to tobiaseftobias's comment
donut999

They have essentially none--at least the average senior. Either no liquidity, or whatever money they do have is cash in cash. When you reach that age range, cash conservation is much more important than appreciation.

July 09 2013 at 4:20 PM Report abuse rate up rate down Reply