Member Exclusive   //   June 6, 2024

Amazon Briefing: What’s driving Amazon & Walmart’s subscription wars

This is the latest installment of the Amazon Briefing, a weekly Modern Retail+ column about the ever-changing Amazon ecosystem. More from the series →

As summer heats up, so are the subscription wars. 

Last week, Amazon announced that customers of its Prime subscription, a membership that costs $139 a year, would also get a free Grubhub+ membership. Amazon started offering Prime customers a free one-year subscription to Grubhub in 2022, which renewed automatically at $120 a year. With the expanded partnership, Amazon users get to order takeout directly on the company’s website and shopping app. For Prime customers, delivery is free on orders of $12 or more, plus other benefits.

Around the same time, Walmart said it was bringing back its members-only sale known as Walmart+ Week. The sales event will run from June 17 to 23 — just ahead of Amazon’s annual Prime Day sale, which is slated for sometime in July, though an exact date hasn’t been revealed yet. Walmart+ Week will also be longer than the same event last year by three days. 

It all adds to the ever-expanding list of perks retail rivals Amazon and Walmart have churned out in the past few years to woo shoppers in an increasingly crowded marketplace, where everyone from Target to Kroger has some sort of membership program. As a result, the subscription wars can perhaps be summed up as a case study in one-upmanship. If one retailer offers a certain perk, another will hit back with a shinier version of it. 

In fact, it’s becoming difficult to keep track of all the perks Amazon and Walmart have rolled out in recent weeks. In April, Amazon announced the launch of an unlimited grocery delivery subscription service on top of its existing Prime membership, with a special discounted rate for low-income customers. Walmart+ already had a discounted version for people on supplemental nutrition benefits, known as SNAP. In May, Walmart+ added telehealth services for pets this year, the service’s first health-care benefit.

But no matter what benefits either Amazon or Walmart throw at the wall to see what sticks, the one-upmanship boils down to one crucial thing: delivery speed. 

“These programs are built around free and fast shipping,” said Blake Droesch, a retail analyst at eMarketer. Although the subscription wars are littered with players, Walmart is easily Amazon’s biggest competitor, in part because the world’s largest retailer, by sales, can afford to build out its own fulfillment network that rivals Amazon’s, Droesch added. 

Indeed, Walmart debuted an early morning delivery service in March that lets Walmart+ members get items delivered in an hour or less when orders are placed at 6 a.m. local time. Walmart’s accelerated delivery speeds seemed to be paying off. The retailer said in its latest earnings that it delivered 4.4 billion items the same day or the next day in the U.S. in 2023, beating Amazon, which previously said it delivered more than four billion items same day or next day in the U.S. in 2023. 

Still, it was only a few years ago in 2019 — pre-Walmart+ — that Walmart entered the fast-delivery wars by offering its customers free next-day delivery without a membership fee. Two years before that, Walmart was peddling two-day delivery without a membership fee.

“Memberships build loyalty,”  Juozas Kaziukėnas, founder of Marketplace Pulses, said in an email. “While fast shipping without a membership is more flexible for shoppers, Walmart realized that that doesn’t build loyalty.”

Though ultra-fast delivery speed may entice customers, Amazon’s effort to continually grow its Prime subscriptions comes down to the customer data that powers the rest of the business, such as its $47 billion advertising unit. Amazon has been pitching itself as the go-to platform for marketers who want to precisely target and measure their advertising. One of the ways Amazon is doing that is with shoppable TV ads atop Amazon Prime Video, which the e-commerce giant debuted during its first advertising upfront last month. It all hinges on first-party data from Prime memberships.

“In the long and short of it, the reason why Amazon is still being super aggressive here is because it’s not just the revenue that they get from Prime,” Droesch said. “It’s that Amazon Prime users and their data power the rest of their profit streams, as well.”

But Amazon is increasingly fighting for ad dollars as a growing ensemble of retailers, namely Walmart, build out retail media networks of their own. Walmart has also been looking to grow beyond the confines of its retail business, like with its $2.3 billion acquisition of TV maker Vizio in February, which would let the retailer know whether or not TV ads are driving sales. In the most recent quarter, Walmart’s global advertising business grew 24% year over year.

As Amazon and Walmart’s subscriptions become more alike than different, what will likely ensue is a retail race to the bottom. 

“If all of these retailers are offering basically the same flywheel of services, then you only really need one,” Droesch said. “Consumers are going to ask which program can offer the most bang for your buck, and those are the subscriptions that are going to keep on growing.”

Amazon remains the dominant player in the subscription wars, with 200 million subscribers in the U.S., or 60% of the nation’s total population. The e-commerce giant’s net sales from its online business exceeded $231 billion last year.

Walmart’s membership program is much newer — the service debuted in 2020 and costs customers $98 a year. While Walmart hasn’t made public how many subscribers it has, estimates from industry experts range as high as roughly 60 million users. Still, this isn’t a David and Goliath story. While Walmart’s e-commerce business is still a fraction of Amazon’s, the Bentonville-based retailer’s online sales jumped 22% year over year in a sign of Walmart’s growing encroachment on Amazon’s turf. Most importantly, Walmart is the leader in terms of grocery sales, an area where Amazon has long struggled

“Although Amazon seemingly has an infinite amount of resources to invest into keeping growth healthy for its Prime subscription, it still has limitations in terms of what they can offer,” said eMarketer’s Droesch.

Grocery dominance aside, the winner of the subscription wars may already be decided. 

“If Amazon already has sixty percent of the population, I think that inherently puts a ceiling on Walmart, and their ability to continue to grow,” Droesch said. “Eventually, they’re going to reach an audience that either isn’t willing to pay for both a Prime membership and a Walmart Plus membership, or they’re going to run out of people who don’t have a Prime membership.”

To Neil Saunders, managing director at GlobalData Retail, Amazon is by far the clear winner, partly because Amazon offers the most bang for the buck. “Amazon not only has the most subscribers, it has the most bells and whistles,” Saunders said. “That said, there is a battle to be had, and Walmart has the firepower to build something interesting.”

There’s also room in the subscription wars for customers who want both a Walmart+ and Amazon Prime subscription.

“It is likely that many Amazon Prime members have a Walmart+ membership, and as Walmart continues to push the program, more will do in the future,” Marketplace Pulse’s Kaziukėnas said. That’s because while Walmart rules grocery retail, including store pick up and delivery, Amazon dominates when it comes to its vast selection of online goods and ultra-fast delivery, he said. “This is not a zero-sum game — both programs can co-exist.”

Amazon news to know

  • Amazon has a new service using computer vision meant to detect defects in products before they’re shipped to customers. Called Project PI, the program is currently being used at several North American warehouses.
  • Sellers have mixed reviews of Buy With Prime, Business Insider reports. Some say customer adoption is still lagging.
  • The Amazon Labor Union is affiliating itself with the International Brotherhood of Teamsters. This comes after the group of workers has faced difficulties negotiating with Amazon on its own.

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