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Analyst Perspective: Walmart Vs. Target Vs. Amazon In Grocery Wars

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Analyst Perspective: Walmart Vs. Target Vs. Amazon In Grocery Wars

What happens when two of the largest U.S. retailers take on the behemoth of the e-commerce universe in a battle for American grocery shoppers, with investors placing their bets on the sidelines? According to a new Bank of America Securities report, the three-way showdown between Walmart (NYSE: WMT), Target Corporation (NYSE: TGT) and Amazon.com, Inc. (NASDAQ: AMZN) offers a distinctive view into pandemic-era retailing and the challenges that will arise when the health crisis is finally in the rearview mirror.

Market Shares: The report acknowledged Amazon's dominance in e-commerce, with a 44% share of the U.S. market. Trailing far behind are Walmart with a 7% share and Target at 2%. Looking forward this year, BofA estimated Amazon's share will expand to 47% in 2021, with Walmart growing to 8% and Target to 3%.

In the grocery sector, Walmart has roughly one-quarter of the total market share, which has solidified over the past 12 months via its contactless fulfillments. However, Amazon has been trying to make inroads over the past two years and its efforts look like they are beginning to pay off.

"We expect AMZN to continue investing in the space as it looks to drive greater frequency/customer stickiness, incl. through plans to open at least 28 more Fresh stores & continue experimenting with its Amazon Go Grocery format (8-13k sq. ft. featuring checkout free technology)," wrote Robert F. Ohmes, research analyst and the report's lead author.

See also: How to Buy Walmart Stock

As for Target, the report noted the company was "accelerating its grocery business," citing the promotion of Rick Gomez to chief food and beverage officer and the 2019 launch of the Good & Gather private label brand that encompasses more than 2,000 grocery items.

Fulfillment Wars The report observed that Walmart and Target have executed omnichannel strategies that play up their brick-and-mortar footprints — Walmart has nearly 5,000 stores and Target has roughly 2,000 — and these can support localized same-day fulfillments, giving them an advantage over Amazon. And while the report noted Amazon's significant investments in fulfillment logistics — it expects to deliver 85% of its U.S. orders on a same-day basis by next year — the report was skeptical if it could rival the competitors in this aspect.

"We believe the # of SKUs AMZN will be able to offer will be very limited relative to its overall ecom SKU assortment, & AMZN will be challenged to have an offering broader than WMT & TGT currently offer from stores," Ohmes wrote.

Seeking Eyeballs And Loyalty: The report also noted Walmart and Target growing their respective third-party seller businesses and increasing their digital advertising endeavors. Walmart also took a page from Amazon's Prime last September by launching the Walmart Plus membership program, which gives consumers access to unlimited free pick-up and delivery as early as the same day, along with fuel rewards and other perks.

Looking ahead, the report predicted Walmart would continue to hold a brand loyalty with lower-income shoppers (whose digital spending is outpacing their wealthier neighbors), while Amazon is seeking a greater urban presence. Target is also aiming at cities, albeit primarily through small-format stores.

Stock Recommendations: The three-way competition resulted in no losers, but all of the companies getting a thumbs-up from BofA.

Amazon was given a Buy rating thanks to "strength in new categories, accelerating growth in cloud, & benefits from logistics investments."

Walmart was given a Buy rating, with kudos given to its digital growth and omnichannel ecosystem.

Target was given a Buy rating, with credit accorded to its "stores-as-hubs strategy, strength in same-day & merchandising/private label, & unique assets incl. Shipt."

Photo by Sanjoy Ghosh / Flickr Creative Commons.

 

Latest Ratings for WMT

DateFirmActionFromTo
Feb 2021Morgan StanleyMaintainsOverweight
Feb 2021Morgan StanleyMaintainsOverweight
Feb 2021Raymond JamesMaintainsOutperform

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