Wal-Mart Tests New Grocery-cum-gas Concept Store

Retailer looks to dominate booming online grocery shopping market

w1Retailing behemoth Wal-Mart Stores Inc. (NYSE: WMT) announced on December 01st, 2016, that it is testing a small-format store called Walmart Pickup with Fuel, which is a new concept offering a combination of an online grocery order pick-up location, a convenience store that sells hot sandwiches and coffee, as well as has a gas station. The 4,000-square-foot convenience stores, by large smaller when compared to Wal-Mart’s large-format stores seen in most locations, is seen as an effort to take competition head-on with online retail giant Amazon.com Inc. (NASDAQ: AMZN) and The Kroger Co. (NYSE: KR), the second-largest food retailer in the U.S., which are both looking to dominate the booming online grocery shopping market.

Walmart Pickup and Fuel are being tested only in two locations, one in Huntsville, Alabama and the other in Thornton, Colorado. The new concept store offers grab-and-go items, including hot sandwiches, healthy snacks, fresh donuts, a host of beverage options and a coffee bar. It also offers home needs like milk, eggs, and bread, and is open from 5 a.m. to 11 p.m. daily.

For a wider selection of grocery items, online grocery pickup is available at the stores between 8 a.m. and 8 p.m. with same-day service for orders placed by 1 p.m. Orders are fulfilled at local Walmart Supercenters and delivered to Walmart Pickup with Fuel via refrigerated truck. Wal-Mart employees pick and pack the groceries at a nearby Walmart supercenter, and load them into customers’ cars at the Walmart Pickup and Fuel for free.

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Wal-Mart already offers online grocery pickup at hundreds of stores. However, this new store concept is meant to make that process easier and more convenient, thanks in part to the small size of the stores and parking lots. Wal-Mart is also testing a pickup vending machine to cater to the growing demand for online shopping and increase convenience for customers. Competition between Wal-Mart and Amazon.com is heating up, with Amazon.com also looking to launch physical stores on a similar concept soon.

Wal-Mart tries new retailing formats

Wal-Mart has chosen the Denver area to test new efforts before, including its initial forays into online grocery pickup. Denver is also a test bed for the chain’s grocery delivery program. Earlier in June 2016, Wal-Mart announced that it is looking to close the last-mile delivery gap  with rival Amazon.com by partnering with ride-hailing companies Uber Technologies Inc. and Lyft Inc. with rival Amazon.com by partnering with ride-hailing companies Uber Technologies Inc. and Lyft Inc. to launch a pilot grocery-delivery service in Phoenix and Denver by late June 2016.

Wal-Mart has also expanded its curbside grocery delivery to a total of 54 markets and in over 200 stores, as of June 2016, to effectively ward off competition from Amazon.com. By the end of July 2016, Wal-Mart nearly tripled the number of stores and markets that offer the curbside pick-up service. After selling 41 former Walmart Express locations across 11 states to discount retailer Dollar General Corporation (NYSE: DG), Wal-Mart is focusing on its multi-channel strategy to serve customers across the Wal-Mart app, sites, and stores.

In the Denver area, Wal-Mart is not the only retailer to see the opportunities. A host of food-delivery startups have entered the market in recent years, with supermarket chain Safeway recently launching its first fleet of online grocery delivery trucks in the metro area. King Soopers has also been offering home delivery of grocery items for years. Wal-Mart has 20 Supercenters and Neighborhood Markets in metro Denver that offer free online grocery pickup, according to the company. With these measures, Wal-Mart is looking to ward off intense competition from Amazon.com, which has been expanding its grocery-delivery service, AmazonFresh, Prime Now, and Prime Fresh across major U.S. cities.

Amazon to go from virtual to physical

Amazon.com is seeing huge opportunities in the “click-and-collect” grocery and fresh food retailing concept and plans to roll out 20 grocery stores by the end of 2018. The stores will have different formats, but half of them will likely be “click-and-collect” drive-up spots for Amazon.com customers to pick up their online orders, much on the lines of Wal-Mart’s new Pickup and Fuel stores. The other half of Amazon’s new stores could look like miniature versions of traditional grocery stores.

Meanwhile, Kroger has also been investing heavily in online grocery and offers online grocery pickup at more than 500 stores. Kroger’s ClickList online grocery service currently allows consumers at more than 500 locations to select from more than 40,000 items and pick up orders at stores. However, Kroger charges a fee of about $4.95 per order for picking up online orders in Richmond, Virginia.

Target Corp. (NYSE: TGT) has partnered with Instacart, an app-based retail delivery service, in three markets and the retailer also allows customers to select an Order Pickup option for packaged food items, or non-perishables. Instacart has also partnered with several other major retailers including Whole Foods Market Inc. (NASDAQ: WFM) and Costco Wholesale Corp. (NASDAQ: COST) for same-day grocery deliveries ordered online.

Online grocery sales growing at a faster clip

Online grocery sales are growing at a faster pace than at brick-and-mortar supermarkets, according to industry research firm IBISWorld. In recent years, online grocery sales have increased 11% per year on average compared to just 1.3% at supermarkets, pointing to the fact that retailers have more growth opportunities in online grocery than there is in regular grocery stores. Although online grocery accounts for a small percentage of overall retailing, its revenue is expected to hit $12.3 billion compared to brick-and-mortar’s $600.8 billion in 2016, according to IBISWorld.

Online grocery shopping has become more convenient and more accessible in recent years due to the internet and mobile apps. The online grocery business is expected to surge over the holidays as major players beef up e-commerce efforts and expand into new markets. Also, tech-savvy consumers have an increased comfort level with buying fresh foods online and see ordering groceries through an app as a way to save time and avoid checkout lines. Moreover, online grocery shoppers are seen to spend more on average than regular brick-and-mortar store customers and are more apt to continue shopping online after they have experienced the service.

Online grocery purchases are expected to rise nearly 20% in 2016, in contrast to just 2% growth in consumer spending for traditional brick-and-mortar supermarkets. As of June 2016, only about 1.4% of groceries in the roughly $800 billion grocery market were purchased online in the US, and this number is projected to reach 2% or more in 2017, according to research firm Kantar.

Besides the reach and convenience, Wal-Mart’s massive network of physical stores offers a better purchasing experience and a pick-up point for its online purchases. Wal-Mart has committed $2 billion over two years to build new fulfillment centers to speed up delivery time and increase the number of product categories sold on its website, apart from local grocery delivery and curbside pickup services. It remains to be seen whether Wal-Mart will be able to snatch market share from Amazon.com through these efforts.

Stock Performance

w3Wal-Mart’s stock ended the day at $69.94, slipping 1.33%, at the close on Monday, December 05th, 2016, having vacillated between an intraday high of $70.99 and a low of $69.81 during the session. The stock’s trading volume was at 9,944,731 for the day. The Company’s market cap was at $215.70 billion as of Monday’s close.

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