Will Home Delivery be Next Growth Driver to Wal-Mart?
Wal-Mart’s (NYSE:WMT) latest move to venture into customers’ home could play a big role in bringing new growth opportunities to the world’s largest retailer. It launched an online grocery delivery service “Walmart To Go” that allows customers to purchase food, health-and-beauty products, medicine and other basic household goods online and have them delivered to their doorsteps for fees starting at $5. However, a minimum order of $49 is required. Wal-Mart competes with other big-name retailers like Target (NYSE:TGT), Costco (NASDAQ:COST), Amazon (NASDAQ:AMZN) and Best Buy (NYSE:BBY).
Our price estimate for Wal-Mart stands at $74.46, implying a roughly 35% premium to market price.
Will home delivery take hold ?
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Wal-Mart is presently testing the home grocery delivery service in San Jose, California. We believe with increasing modernization and Internet penetration, it is very likely that customers’ tendency would tilt towards being more aware about prices and at the same time shifting preference towards spending less time on running errands. There is a large number of customers who dislike spending weekends on grocery shopping.
The home delivery alternative could find a pent up demand for such customers. According to survey results from Booz & Co. and the Grocery Manufacturers Association, about 62% of shoppers research online deals before heading out to shop at least 50% of the time. [1]
At present, Wal-Mart is facing increasing price competition from dollar chains and online retailers. Customer traffic has also weakened lately. Since 2007, Amazon has operated Amazon Fresh grocery delivery service in Seattle. It rolled out a new service in parts of Seattle, “AmazonTote” that allows shoppers to receive select merchandise (beyond groceries) once or twice a week. Amazon is presently looking to expand its home delivery service and started recruiting for the same.
We believe home delivery service has prospects of being successful on a larger scale by engaging customers who love being served at home.
See our complete analysis of Wal-Mart
Notes:- See: As Wal-Mart Launches Home Delivery, Smarter Selling Moves Comes Back Home, April 27, 2011 [↩]