Amazon vs. Walmart: Grocery Wars Go Nuclear

Amazon.com (NASDAQ:AMZN)  opened its first “checkout-free” grocery store this week.

The venture is called Amazon Go. Instead of filling a cart and taking your items to a clerk to pay, you check into the building with the Amazon Go app and your shopping basket is automatically monitored. Once you have what you want, you walk out and your purchases are recorded and paid for thru the app. No waiting in line necessary!

The tech world is already buzzing about the company’s plans to rapidly expand the Amazon Go footprint. Business Insider even estimates that Amazon could open as many as 2,000 of these stores across the country over the next 10 years.

Everyone already knows how Amazon has upended brick and mortar retail. That’s why we’re paying close attention as the king of e-commerce takes on the grocery world — one of the few corners of the old retail model that has fiercely defended its turf over the years.

Let’s not forget that it’s only been only seven months since Amazon shocked the grocery industry with its $14 billion Whole Foods acquisition.

The company has hit the ground running with its Whole Foods merger, slashing prices on everything from baby kale to avocados. Even though we’re in the first phases of Amazon transforming grocery shopping, investors already believe traditional grocers and wholesale discounters can’t compete anymore.

It’s a logical argument. The margins in the grocery biz were razor thin before Amazon stepped into the room. If Bezos & Co. decide to tighten the screws, traditional grocers could be in big trouble.

Of course, Amazon’s push to make organic food more affordable at Whole Foods and their new Amazon Go location are just the first of many skirmishes to come in the grocery wars.

We haven’t seen the end of the big grocery and discount chains. Amazon may have a history of muscling out some of the most iconic old-school retailers in the world. But its biggest grocery competitors aren’t going down without a fight.

Walmart (NYSE:WMT) is already firing back. In fact, the mega discounter just filed a new patent that looks to solve one of the biggest issues with online grocery shopping.

Walmart knows customers ordering groceries online don’t want bruised apples and wilted lettuce arriving at their homes. That’s why the company is developing a system that will allow its online customers to browse scanned images of actual fresh items and select which ones they want to buy.

“People tend to like picking their groceries out themselves to ensure it meets their standards,” CB Insights reports. “Ordering produce, meat, and baked goods based on stock photos is risky, since the actual items often don’t look anything like the selected image.”

Should Walmart’s quest for high-tech grocery delivery worry Amazon?

Maybe.

We already know Amazon has the traditional grocers in its crosshairs. Sprouts Farmer’s Market (NASDAQ:SFM) and Kroger Co. (NYSE:KR) shares took a big hit back in June when news of the Whole Foods acquisition first hit.

But both names have recovered and jumped higher by more than 20% since Amazon announced it would acquire Whole Foods.

In fairness, Amazon is still the biggest winner of the lot. The stock has jumped more than 41% since its Whole Foods announcement.

But Walmart is hot on its heels. We’re seeing a healthy rivalry brewing between these two businesses. That could be great for consumers — and even shareholders!

As Amazon continues its quest for world domination, we can expect to see some renewed competition in this sector. In fact, we’re probably just scratching the surface of what new tech can do for the grocery shopping experience.

Bottom line: Walmart has done an impressive job at keeping up with Amazon while other retailers have taken a hit. This fight is just beginning.

Sincerely,

Greg Guenthner
for The Daily Reckoning

The Daily Reckoning