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Walmart has something Amazon can't compete with

Krystal Hu

Walmart (WMT) reported stellar earnings on Tuesday, driven by its strong grocery business and 40% sales growth in e-commerce sales. The company’s investment in the online grocery business is paying off, thanks to a major advantage it has over competitors like Amazon.

Retailers are racing to digitize the grocery business by adding in-store pickup and delivery services. That’s where Walmart flexes its muscle and leverages its more than 4,700 physical stores. Grocery pickups are available in more than 2,100 Walmart locations, and delivery is available in 800 Walmart stores in over 100 metropolitan areas in the U.S., which represents about 59% and 36% of the U.S. population, respectively.

Those numbers dwarf Amazon, which has been expanding similar services from Whole Foods Market through Prime Now to 60 U.S. metro areas with grocery delivery and over 20 metros with pickup service. Amazon said it plans to expand, but it’s hard for them to catch up to Walmart, which revealed efforts to grow grocery deliveries to more than 300 metro areas by the end of this year.

“We will continue to play and innovate as we shape the future of our omni retail. This includes the expansion of innovative services like online grocery pickup and delivery,” Walmart President and CEO Douglas McMillon said on Tuesday. The company now employs about 37,000 personal shoppers who collect items for online orders.

Walmart said it’s seeing mixed baskets, an order that includes both groceries and non-food items, from customer orders. Its services have also attracted new consumers, which the company called an “exciting development.”

Walmart’s goal isn’t to be the fastest

A sign is displayed at a Walmart Pickup Grocery location in Bentonville, Ark., Thursday, June 4, 2015. (AP Photo/Danny Johnston)
A sign is displayed at a Walmart Pickup Grocery location in Bentonville, Ark., Thursday, June 4, 2015. (AP Photo/Danny Johnston)

Last year, 18 million U.S. adults used a grocery app at least once a month, up 49.6% over 2017, according to eMarketer. Amazon’s grocery delivery and pickup through its Prime Now app feature ultra-fast delivery in as little as 30 minutes. But for Walmart, the goal is not to be the fastest. McMillon said the user case of grocery delivery is different from restaurant delivery, as the company needs to manage margins and scale up.

“You can decouple speed of delivery in a way that helps us manage costs, so as the volume goes up and density improves. And we'll try to figure out how to drive a basket business, that looks more like dense route than a one-hour or a 30-minute race to deliver to somebody's house,” McMillon told analysts on Tuesday.

Walmart’s pickup service is free for all orders over $30 and it charges a fee for grocery delivery depending on the location and time-period for delivery. Meanwhile, Amazon offers delivery and pickup service for Prime members. As the online e-commerce giant makes its foray into the grocery business, it has to build more physically locations to support the supply chain. This is where Walmart has an inherent advantage, with its more than 4,700 stores in the U.S. and 90% of Americans living within 10 miles of a store. Amazon plans to expand to more than 470 Whole Foods locations in the U.S., but it’s still a far cry from Walmart in terms of store numbers.

Walmart’s goal is to offer customers more options about where they can shop and how they can shop for everyday food. “There will be families that come into stores, once a week or twice a month or whatever, and they'll also use pickup. They'll also use delivery. And we'll have the ability to serve them in all those ways,” McMillon said. “And the good news is that once customers are in your ecosystem, they'll use you in some way.”

Do you shop groceries online? Share your experience and thoughts with Krystal Hu via krystalh@yahoofinance.com

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