Amazon rattled the e-commerce world last week by announcing that it will begin to offer same-day delivery for perishable items in thousands of cities. The news sparked a rally in Amazon stock, and sent shares of rivals like Walmart, Instacart and DoorDash sliding.
The market reaction underlined the intensifying rivalry in e-commerce at a time when Americans are spending more than $1 trillion every year on groceries. Despite its dominant position for overall U.S. e-commerce spending, Amazon is facing stiff competition at the virtual checkout counter. It has struggled to settle on a strategy for grocery shopping, even after acquiring Whole Foods eight years ago. That's left the tech giant in an unfamiliar position: second place.
"Walmart is really running away from the pack, and has been doing so for at least four years," David Bishop, a partner at e-commerce research and advisory firm Brick Meets Click, told Investor's Business Daily.
Meanwhile, Instacart is steadily building off the huge rush for on-demand grocery delivery brought on by the pandemic five years ago. Not content to stick with restaurant delivery, Uber Technologies and DoorDash are increasingly routing their couriers to the aisles of grocery stores and pharmacies.
Against that backdrop, Amazon Chief Executive Andy Jassy unveiled an expanded initiative to offer same-day delivery on perishables, which will reach to 2,300 U.S. markets by the end of the year. The service is free for Prime members on orders that are $25 and above.
But analysts say it's not yet clear if Amazon's new initiative efforts can help it gain ground.
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State Of The Grocery Delivery Market
The company's pushing for a stronger position in e-commerce at a critical time. With U.S. consumers still cautious about big-ticket items, Amazon has cited "everyday essentials" as a key growth area for its retail business.
Meanwhile, Americans will spend about $220.5 billion buying groceries online in 2025, according to projections at the start of the year from Emarketer.
That market is led by companies that sell groceries directly to consumers, such as Walmart, Amazon, Target and Kroger. Those retailers account for about 73% of all grocery purchases made online.
Walmart will account for about 32% of those sales, according to Emarketer. Amazon is second with 22.6%.
Meanwhile, delivery intermediaries that send couriers to shop at supermarkets — Instacart, DoorDash, Uber Eats — account for the other roughly 26% of grocery purchases made online.
Instacart dominates that category, with a forecast 58% market share in 2025, according to Emarketer. Instacart has been focused on the grocery market since its founding in 2012. DoorDash and Uber Eats started in restaurant delivery before expanding.
Walmart's Grocery Strengths
Walmart, meanwhile, has steadily built out its online operations and analysts expect its e-commerce business to be profitable for the first time this year. The retail giant said Thursday that its e-commerce sales growth accelerated to 26% for its July-ending quarter.
A key part of the company's strategy is Walmart+, a $98 membership that includes free delivery from local Walmart locations, free shipping on other items and other benefits. It's Walmart's answer to Amazon's popular Prime membership.
Covid-19 and the pandemic helped drive more Americans to shop for groceries online. But the inflation that followed the pandemic in 2022 helped separate Walmart from the pack.
"A flood of share went to Walmart as 'flight-to-value' accelerated across all income levels," Brick Meets Click's Bishop told IBD.
Walmart suddenly became more popular with affluent customers that would historically go to regional supermarkets or rivals like Target.
"They've been able to capture more upper-income households and they have been able to do that through delivery," Bishop told IBD.
Warehouse Expansion Could Fuel Grocery Push
Walmart's ability to deliver is powered by its more than 4,600 stores. That allows the company to reach 93% of the U.S. population in under three hours, according to estimates from analysts at Bernstein.
Amazon's physical stores are limited to Whole Foods and its Amazon Fresh locations, a much smaller footprint.
"Amazon's biggest Achilles' heel (for grocery) is they just don't have a large brick-and-mortar presence," CFRA analyst Arun Sundaram told IBD. "To deliver highly perishable goods to consumers, you need to be close."
But Amazon does have a massive network of fulfillment centers. The company spent big in 2022 to expand and regionalize its warehouse operations in the U.S.
Rather than only offering perishable items through its Whole Foods and Amazon Fresh brands, they will now be shipped directly from Amazon's fulfillment centers in many markets.
"Amazon is leveraging a position of strength, just like Walmart did for its delivery operations," Bishop told IBD.
Amazon already has what Jassy last year called a $100 billion grocery business, not including Amazon Fresh and Whole Foods. But that business is dominated by items like batteries, laundry detergent and toothpaste.
On a recent call with analysts, Jassy touted the success of a pilot program that allowed customers to bundle perishables with orders for other items. About 20% of customers who used the perishables service ordered multiple times in their first month, according to Jassy.
Instacart Stock Takes A Hit
Wall Street appears more worried about Amazon taking grocery share from on-demand platforms rather than Walmart.
Shares of Instacart parent Maplebear closed 14% lower the week Amazon announced its grocery plan. DoorDash lost 4%.
Some analysts viewed that as an overreaction, particularly for Instacart. Instacart is coming off a quarter where sales beat expectations and Chief Executive Fidji Simo said the business was "firing on all cylinders."
Bernstein analyst Nikhil Devnani said that Instacart has been able to offer steady 10% revenue growth despite the increasing grocery competition. It also is seeing benefits from lowering its membership free delivery minimum to $10 and offering restaurant meals through a partnership with Uber.
"Instacart continues to have a selection advantage to the degree consumers value ordering from Costco, Kroger, etc.," Devnani said in an Aug. 15 client note. "And these retailers now need to lean further into the on-demand platforms to compete with Amazon."
Instacart, DoorDash and Uber are also able to offer deliveries typically within hours, even speedier than a same-day promise from Amazon.
On the other hand, Wedbush analyst Scott Devitt downgraded Instacart stock in a client note Thursday to underperform, from a previous neutral. Following Amazon's announcement, Devitt wrote, "We think Prime has become an even more compelling subscription for grocery shoppers, diminishing the appeal of Instacart."
Can Grocery Be A Catalyst For Amazon Stock?
Analysts offered positive commentary on Amazon's move, for the most part. BofA Securities Justin Post told clients that "with better grocery capabilities, Amazon should see important customer frequency benefits."
Amazon stock is trading just 2% higher year-to-date, underperforming the S&P 500. That's after digging out from a deep slump in the spring, when investors feared tariffs would weigh on the company's profits. But Amazon's rally lost steam following its Q2 earnings report, which showed cloud computing sales growth that failed to measure up to gains by Microsoft and Google.
CFRA's Sundaram is bullish on Amazon overall. But he is skeptical of the view that Amazon is a threat to significantly disrupt the grocery sector. The tech giant has bigger priorities, in his view, such as pursuing AI growth for Amazon Web Services. And it has been offering groceries for some time without dominating the market.
"I think the best way to say it is, I'll believe it when I see it," CFRA's Sundaram told IBD.
