Amazon, Walmart, and Costco – Three Giants Aiming to Shake Up the Grocery Industry
Three non-traditional grocery retailers are looking to make waves in the $700+ billion retail food business in the U.S. Walmart is already the largest supermarket chain by a wide margin; now, the company could accelerate the opening of its Neighborhood Market grocery stores. Bill Simon, CEO for Walmart US, said the company had plans to open between 80 and 100 Neighborhood Market stores this year and next, with the potential to increase that number as returns on newly built stores approach those of its Supercenter format. Simon said the chain was “comping as well as any grocery chain in U.S.,” comparing the neighborhood concept to a hybrid format that competes effectively with drug, conventional grocery, and dollar stores. In addition, Walmart announced a 100% money back guarantee on the freshness of its produce at all of its locations to promote traffic for this department.
Recently, Walmart has come out and said there is a ‘weak demand for E-Grocery in the U.S.’ Meanwhile, one of its biggest competitors sees things differently. The Los Angeles area will now be one of the first markets to offer Amazon Fresh – an online grocery delivery service. San Francisco is likely to be next later this year. If the rollout is successful, sources say Amazon has identified as many as 40 markets for expansion of the new service. A national distribution center network could soon follow. One of the unique aspects of Amazon Fresh is its emphasis on local products. The company is said to be recruiting local vendors to be part of its expansion. Amazon is not the first to offer online grocery services in the U.S., though the demand hasn’t been quite as explosive. Peapod LLC, a division of Ahold USA, has been delivering groceries for nearly 25 years across 24 U.S. markets.
Of all the ‘big-box’ retailers, Costco has the largest percentage of sales attributed to grocery products at over 65%. Each store is a yearly multi-billion dollar operation. Recently, the company announced plans to open 150 new warehouses over the next five years, including the 28 its projects to open this year. Of the total, approximately 55 would be in the U.S. while the rest will be in Canada or overseas. Costco has already opened 19 new warehouses this year, with three in the U.S. According to CFO Richard Galanti, the company’s most recent quarterly financials revealed flat customer transactions. However, customer frequency rose 5.5% for the quarter and 4.8% for the year to date, which he attributed to two factors: the price of gas, which accounts for about 10.5% of Costco’s sales — and the fact 30% of gas customers shop the warehouses; and fresh food sales, which drive greater frequency.