For years Walmart, the 54-year-old monolith of retail, has aimed to catch up online with Amazon, the technology group that has sought to disrupt every aspect of shopping.
In turn Amazon, under the lead of billionaire Jeff Bezos, has tried a host of experiments to make a dent in Walmart’s dominance of traditional retail, opening physical bookstores and offering discounts to food stamp recipients.
However, deals announced on Friday, which included Mr Bezos’ largest financial bet to date, may be an admission from the two-largest players that the future of shopping will be a hybrid of online and offline. Amazon’s $13.7bn purchase of Whole Foods, through which it inherits more than 400 physical stores, was met with Walmart’s announcement that it had bought online clothing seller Bonobos for $310m — its fifth ecommerce acquisition in less than a year.
“They’re meeting in the middle right now,” says Chieh Huang, chief executive of Boxed, an ecommerce start-up. “If you think of a mountaintop, on one side you have the tech folks trying to figure out retail, while the retailers are trying to figure out technology. Amazon said screw this: we’re going to figure out physical retail faster by paying $13bn.”
Amazon and Walmart have made a string of moves to match each other’s plans as the companies, which combined made more than $600bn in sales in the past fiscal year, strive to become the go-to destination for products ranging from diapers to virtual reality headsets.
But on Friday the rivalry, which sets a storied Arkansas company up against a Seattle-based tech giant, entered new territory.
Amazon’s purchase of Whole Foods came as “somewhat rather than totally surprising”, say analysts at RBC, noting that while the company “has always veered away from physical retail presences . . . we have for some time identified groceries as one of the most logical places for Amazon to expand into”.
Amazon’s entrance to the $800bn US groceries market, traditionally a stronghold for Walmart, began when it opened its own grocery delivery programme, AmazonFresh, in 2007. In December Amazon unveiled Amazon Go, a checkout-free convenience store.
However, purchasing a hefty bricks-and-mortar chain is a “tacit admission from Amazon that food retail is incredibly difficult as a pure online player”, says Fraser McKevitt, head retail analyst at Kantar.
The move reflects the realities of the grocery business, analysts say. “In no sector is physical footprint more important than food,” says Charlie O’Shea from Moody’s. “Dairy has to be delivered quickly. Just like what Walmart did last year in buying Jet.com, Amazon recognises that it’s more effective to buy it than build it.”
Amazon may use Whole Foods’ stores to beef up its offerings in ordering, pick-up and delivery, or use its distribution centres to deliver products for AmazonFresh trucks, says Mr Huang. “Building a cold supply chain with refrigerated trucks is not easy or cheap to do,” he says.
While more and more people buy other products from their sofas online, fresh food is trickier than other sectors, like books and toys, that Amazon has come to dominate. Shoppers often want to see and touch fruit and vegetables before they buy them. Many products need to be frozen or cooled and delivered quickly.
In this environment Walmart, which derives 60 per cent of its sales from food, holds an advantage. Walmart controls about a fifth of the US groceries market, and an even greater share for low-income households.
In response to the deal a Walmart spokesperson said “we feel great about our position” in providing a “mix of physical and digital channels” to meet the needs of shoppers. About 90 per cent of Americans live within 10 miles of a Walmart store.
Executives in Arkansas this month extolled the value of their physical presence in the war with Amazon, which employees refer to as “the other retailer”, as the company unveiled a programme for its own store employees to deliver online orders to shoppers’ doorsteps. Walmart also offers discounts to online shoppers who pick up some packages in-store.
But under the leadership of Doug McMillon, chief executive, who calls himself a “gadget guy”, Walmart has also looked to recast itself as more of a technology group, most prominently with its $3.3bn purchase of Jet.com in 2016. The deal put Marc Lore, an ecommerce entrepreneur who worked at Amazon for two years, in charge of Walmart’s global ecommerce effort. Walmart has also introduced drones and Blockchain technology to its delivery process and partnered with car-booking start-ups Uber and Lyft to deliver groceries.
The battle in groceries comes as German discounters Aldi and Lidl have opened shop in the US, risking a price war with incumbents, whose shares plunged on Friday. The entrance of Aldi was one of the deciding factors in Whole Foods’ move to sell, said one banker familiar with the matter.
Amazon’s purchase of Whole Foods “could mark a major turning point for retailers”, says Paul Beswick, a partner at Oliver Wyman. “In one stroke, Amazon has acquired a nationwide cold chain, deep fresh sourcing expertise, a global sourcing network . . . AmazonFresh is no longer something to keep an eye on. It is now every traditional grocer’s biggest strategic threat.”