Amazon pressures Walmart, other retailers with one-hour delivery
Amazon is getting even faster, posing a competitive threat to Walmart as well as other big-box retailers and grocers that people turn to for quick purchases.
One-hour delivery from Amazon is now available in hundreds of cities across the U.S., in addition to three-hour delivery in 2,000-plus cities and towns, the company announced last week. The selection is limited largely to products found “in a local supercenter,” including pantry items, cleaning supplies, health and beauty products, and over-the-counter medications, the e-commerce giant said.
“Our customers are busier than ever and are looking for new ways to save time while keeping their households running,” Udit Madan, svp of worldwide operations at Amazon, said in a news release. “We saw an opportunity to use our unique operational expertise and delivery network to help make customers’ lives a little easier while unlocking even more value for Prime members.”
This has implications both for one of Amazon’s biggest e-commerce rivals and the physical retail space. Amazon is encroaching on one of Walmart’s biggest strengths, super-fast same-day delivery that leverages its extensive store network. Additionally, if Amazon delivers on fast fulfillment, this may pressure big-box retailers that customers frequent for quick purchases and otherwise wouldn’t purchase online.
“It’s just broadening the spectrum of options out there to give consumers choice, but also to perhaps help [Amazon] eat into some brick-and-mortar retailers’ share — because if you can spend $4.99 and save a trip to the store, you may be more willing to buy a toy on Amazon rather than get in your car and drive 15-20 minutes to a Target,” said Zak Stambor, principal retail and e-commerce analyst for eMarketer. “Faster, more predictable delivery can unlock demand, particularly in those everyday categories and staples [consumers] are accustomed to purchasing offline.”
This gets Amazon more into fast grocery delivery, one of Walmart’s strengths, although it has yet to add perishables to the one-hour or three-hour service. Still, Amazon rolled out same-day delivery of perishables to more than 2,300 cities and towns at the end of last year, free for orders over $25 in most areas.
“Amazon’s goal is to continue to give the best service and convenience it can to the customer; delivery speed is a big component of that,” said Christina Boni, svp of corporate finance at Moody’s Ratings, adding that the company hopes to keep customers within its ecosystem to sell them advertising and collect data. “At the end of the day, they want you to go to them first, … so you know you can go there and have all your needs met, and you really don’t need to leave the ecosystem.”
Amazon said it is leveraging existing same-day delivery sites for the one-hour and three-hour delivery. It said these sites have been able to enable faster delivery by using predictive AI inventory placement algorithms to streamline the picking, sorting and fulfillment processes.
Prime members will pay $9.99 for one-hour delivery and $4.99 for three-hour delivery. Non-Prime customers will pay $19.99 for one-hour delivery and $14.99 for three-hour delivery. The standard same-day delivery option remains free for Prime members on qualifying orders.
“I think it’s expensive, even for Prime members,” said Anne Mezzenga, a former Target executive as well as founder and CEO of Retail Field Report, a new media outlet covering retail. She doesn’t expect this to disrupt Walmart, as it offers a less expensive membership program, Walmart+, that also includes free delivery, with a similar cost for Express Delivery orders that arrive within one to three hours ($10, with no additional fee for Walmart+ members).
“This is a good defensive move for Amazon to try to steal some of that share from that upper-income consumer, but you cannot meet the convenience, speed and price point of Walmart,” Mezzenga said. Walmart has seen large gains among people earning $100,000 or more over the last few years, and the company has been focusing its messaging more on that audience.
“I don’t see the harm in Amazon trying it; they’re still going to get people to [use] it,” Mezzenga said. “It gives them a really good way to test and see what people’s convenience and price-point threshold is, because they can always bring it down.”