Is Wal-Mart Prepared To Face The Amazon – Whole Foods Combination?

Amazon’s surprise announcement of its acquisition of grocery chain Whole Foods is being viewed as disruptive for the grocery industry (see Amazon Could Upend The Grocery Market With Whole Foods Deal). For Wal-Mart (NYSE:WMT), which has been working overtime to build a competitive edge against Amazon, this move comes as a big blow. Grocery is a significant part of Wal-Mart’s business, and reports in May suggested that the company is gaining market share in the segment. Some analysts estimate that Wal-Mart commands a nearly 21% market share in the $800 billion U.S. grocery market.  However, with the acquisition of Whole Foods, Amazon has confirmed that it plans to be a serious player in this segment. The space has gotten intensely competitive for Wal-Mart, and with Amazon’s focus on technology to provide convenience to consumers, Wal-Mart will need to stay on its toes to maintain its market share.

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Convenience Through Technology Likely To Be The Key Factor

Amazon has not been able to penetrate the grocery market in a meaningful way yet, as many consumers still prefer to pick up groceries themselves. Morgan Stanley’s research shows that 67% of consumers who have never shopped for groceries online have not done so because they want to select produce themselves. Groceries are a key driver of traffic at Wal-Mart’s stores, and the company is working on several ways to ensure that customers continue to visit its outlets for groceries. At the same time Wal-Mart is working on an integrated retail strategy, whereby customers can conveniently shop through innovative ways such as its associate delivery program, curb pick up facility and the scan and go initiative. Amazon, on the other hand, is working on its Amazon Go checkout-free store formats. Wal-Mart is not currently testing anything similar, though the company is working on initiatives such as an automated shopping cart to make it faster and easier for customers to pick up their daily grocery needs.

Amazon’s deal with Whole Foods makes it a strong competitor for Wal-Mart, not to mention the leading grocery stores. Its deep pockets and technological expertise can threaten Wal-Mart on the convenience front. It might not be difficult for Wal-Mart – or Target – to match the quality and price of products offered, but Amazon has an advantage in the form of its loyal Prime customer base and its AmazonFresh and Amazon Go offerings. However, Wal-Mart has a leading share in the grocery market, and with its acquisition of Jet.com the company is ensuring that its focus on e-commerce remains strong. The company is actively working on initiatives to provide the necessary convenience to customers, ensuring that they remain loyal to Wal-Mart. While the competition has undoubtedly gotten tougher with this deal, the company does have the necessary ammunition to put up a strong fight.

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