Amazon vs. Walmart

Walmart and Amazon have long been pitted against each other as the two dominant sellers of anything and everything in the U.S., but the latter's industry-shaking plans to purchase Whole Foods Market for $13.7 billion have the two retail giants on a direct collision course.Amazon's unprecedented announcement will be its largest transaction ever and underscores just how radically the retail business is shifting as online and physical retail blend together. The news overshadowed Walmart's similarly timed confirmation of its previously rumored $310 million Bonobos purchase (not to mention Lidl's much-anticipated entry into the U.S. market). For its part, Walmart's acquisition will be the latest in a string of e-commerce purchases and technology investments intended to build assortment and expertise to compete on Amazon's home turf. Walmart still lags far behind Amazon in terms of e-commerce, but the mass merchant has confidently pointed to its sprawling brick-and-mortar network of more than 4,600 U.S. stores as an advantage over the e-tailer, both in terms of fulfillment speed and cost as well as the trip-driving perishables category. Amazon's purchase of 440 Whole Foods stores doesn't entirely even the playing field, but it underscores the importance of a physical presence even as grocery shopping increasingly shifts online. The acquisition will push Amazon's grocery plans beyond the Amazon Fresh produce and pantry pickup locations presently being tested in Seattle and squarely onto the turf of traditional retailers, even as Walmart continues expanding its Grocery Pickup services and testing other innovative fulfillment methods.Amazon and Walmart already face off on price and their escalating competition will put even more pressure on grocers. The two companies additionally have both been expanding their private-label food assortment, and adding Whole Foods' 365 brand to the mix will also intensify competition with high-margin CPG companies. The alternative grocer serves higher-income shoppers that align with the demographics of Amazon's Prime program, but Amazon also is increasingly targeting lower-income shoppers with moves such as dropping the price for a Prime membership from $10.99 a month or $99 annually to $5.99 a month for consumers living on government assistance.For Amazon, perishables present an opportunity not only to take Walmart's crown as the top seller of groceries in the U.S. but also to rethink the entire process of food sourcing and distribution. As the leading seller of natural and organic foods, Whole Foods will undoubtedly become a playground for testing new ideas. Will stores be laid out like warehouses to optimize for online delivery? Will checkout become invisible as in the Amazon Go pilot? Will Amazon also apply the dynamic pricing strategy it uses in its bookstores? Will it try to use its newly patented "Physical Store Online Shopping Control" technology to block shoppers from price checking online? Will Whole Foods spin off a new brand of stores?It is also unclear what will happen to Whole Foods' contract with Instacart after the acquisition, though presumably Amazon would prefer to use its own trucks to manage deliveries. (Ahold Delhaize's grocery delivery pioneer Peapod also is on alert as Amazon expands its reach into the business.) In the near term, the news has rocked share prices for Walmart and many other retailers — Target, Kroger and Costco, to name a few.

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