Investing.com — Amazon (NASDAQ:AMZN), with approximately a 40% market share, continues to dominate US e-commerce due to its appealing Prime service, which offers fast, free shipping and a vast product assortment through its marketplace.
But despite Amazon’s strong position, Bernstein analysts believe Walmart (NYSE:WMT) has the potential to take the lead in e-grocery, leveraging its unmatched scale and proficiency in grocery sales.
Walmart’s focus on staple items, which constitute nearly 70% of its sales compared to Amazon’s 53%, positions the retailer well in the e-grocery segment. Although the emphasis on lower-margin staples could present a challenge, Bernstein believes Walmart’s grocery strength is a decisive advantage. The research suggests that grocery is the key area where Walmart can outperform in e-commerce.
The report further compares the business models of other major retailers in the mass/club retail space.
Target (NYSE:TGT) is noted for its vulnerability to e-commerce shifts due to its discretionary product focus and labor-intensive store fulfillment model. On the other hand, Costco (NASDAQ:COST) has strategically partnered with Instacart (NASDAQ:CART) for same-day grocery deliveries, avoiding the high costs associated with in-house fulfillment.
Bernstein also examines the balance between first-party (1P) and third-party (3P) sales among these retailers.
Amazon operates a hybrid model with one-third of its Gross Merchandise Volume (GMV) from 1P sales, while Walmart, Target, and Costco primarily rely on 1P sales.
According to Bernstein’s analysis, retailers with larger 3P marketplaces, such as Amazon, are better positioned to increase advertising and marketplace fee revenues. Walmart’s advertising revenue is currently a low single-digit percentage of its GMV, but there is potential for growth in its marketplace and advertising sectors.
“We believe that WMT can play catchup by growing its marketplace but likely won’t achieve AMZN’s level as WMT strikes a balance between maintaining its e-grocery stronghold and growing the more profitable 3P business,” analysts led by Zhihan Ma said in a note.
Overall, analysts emphasize that e-commerce success, particularly in the US, is driven by scale and the ability to manage high labor costs. Although Amazon leads in non-grocery categories, Walmart’s strong grocery foundation, brand equity, and extensive fulfillment network place it in a favorable position to expand profitably in e-grocery.
“WMT’s brand equity and price leadership in grocery, along with its expansive store footprints and fulfillment capabilities give the company a right to win,” analysts explained. “With grocery being a key traffic driver, however, WMT’s recipe for success online will be different from AMZN’s.”
They expect Walmart to continue focusing on 1P, grocery products, and pursue growth in alternative revenue streams while exploring automation to reduce e-commerce costs.
