My thoughts on Walmart Plus

On Tuesday, Walmart unveiled its a long anticipated membership program called Walmart+. For $99/year, members can have unlimited free qualified deliveries from stores, fuel discounts at Walmart & Murphy stations as well as shopping tools such as scan & go to avoid long lines. To qualify for free shipping, deliveries must be $35 or more. Walmart said that there were more than 160,000 items available for this program, ranging from groceries, toys, household essentials to technology. Additionally, members can get 5 cents per gallon off at Walmart and Murphy gas stations. The company said that customers would be able to subscribe for this program starting 15th September 2020 with a 15-day trial.

How competitive is it?

Compared to Amazon Prime, Walmart Plus is years behind. First of all, at $119 a year, Amazon Prime includes many more additional benefits such as exclusive discounts, unlimited deliveries of qualified items without minimum purchase requirement, media & entertainment perks, just to name a few. Among the biggest benefits that Prime offers is the ability to get unlimited two-day delivery for low value items. I can’t count how many times I order stuff less than $15 individually. Second, Amazon carries a lot more items for Amazon Prime than Walmart. Third, when it comes to online shopping, it is a much more established name than its Arkansas-based rival. Shoppers trust Amazon and that’s a true competitive advantage.

What works for Walmart Plus in comparison to Amazon Prime, I believe, is that it offers less expensive groceries. My experience with shopping groceries on Prime is frustrating. I was confused about groceries on Amazon itself and then Whole Foods. Plus, they are not as cheap as groceries sold by Walmart. Hence, if customers are geared more towards grocery shopping, I think Walmart Plus can make a play there.

Other grocers or retailers follow almost the same playbook. Deliveries have to meet a certain threshold to be free and if retailers don’t handle delivery themselves, they’ll partner with Instacart. In that case, customers either pay a small fee for each delivery or enroll in a membership with Instacart (in either case, you are expected to tip drivers). Each retailer will appeal to shoppers in a different way. Take Aldi for example. Its unique selling point is inexpensive fresh groceries. Look for cheap grapes and great Greek yogurt? Head to Aldi. The downside is that Aldi carries few SKUs and less flexibility for shoppers. Target offers much more flexibility and choice as it carries more items, but its groceries are significantly more expensive than those at Aldi or Walmart, in my experience. Costco seems to match Walmart on the grocery front. A Costco member (at least $60/year) can have free grocery delivery for orders of $35+. Groceries at Costco are competitive in prices, compared to those sold at Walmart. Other items can have free delivery too, and with no minimum order requirement, but it will take at least two days.

Figure 1 – Delivery options at Costco. Source: Costco

There are other important players in this space such as Instacart and Shipt. Instacart Express or Ship membership is almost identical to Walmart Plus. Both cap membership fees at $99/year and a qualified basket has to be $35 or more. Unlike Walmart, Instacart is more focused, almost exclusively, on grocery delivery. Shipt is similar to Instacart and owned by Target, but also delivers for other brands as well. An advantage that Shipt or Instacart has is their network of partners. Walmart Plus works only for items sold by Walmart. With Shipt or Instacart; however, shoppers can order from different stores that sell different private brands. It offers shoppers more choices and flexibility. This is the list of retailers partnering with Instacart at where I live. I am sure in bigger cities, the list will be much longer

Figure 2 – Retailers that partner with Instacart in Omaha. Source: Instacart

It’s worth pointing out that even though you can order from multiple stores within Instacart, each store has its own check-out and minimum purchase requirement. The value for customers here is that they won’t have to create an account or download multiple apps on their phone. Within Instacart, they can place orders from different apps. What works for Walmart against the likes of Instacart is that Walmart offers non-grocery items for deliveries as well. Walmart Plus also offers fuel discounts, something that isn’t possible with Instacart.

This is how I think about the positioning of a few retailers who either have their own delivery programs such as Walmart or Amazon, or have their delivery powered by Instacart/Shipt

Figure 3 – 2×2 positioning metric

Among the ones I picked to analyze, Costco is the most similar to Walmart in terms of positioning. Their assortments and offering of inexpensive groceries are pretty similar. While Costco membership, the lowest level at $60/year, is cheaper than Walmart Plus, the fuel discounts and in-store shopping tools from Walmart make the comparison interesting. As far as I am concerned, Murphy and Costco stations are pretty similar in gas prices. Throwing in another 5 cent discount can be attractive to shoppers who drive a lot. Plus, in-store shopping perks like Scan & Go and pay with Walmart Pay can offer extra flexibility. Sometimes, we just need one or two quick items that wouldn’t qualify for a free shipping and we don’t mind stopping at a store for a few minutes. These shopping perks can make life a little bit easier for shoppers to get in and out of a store quickly.

What’s next?

It’s both interesting and challenging to look at this space as there are so many ways to slice and dice. For instance, Walmart Plus enables Walmart to keep their faithful customers from joining the likes of Instacart. If somebody tends to shop more at Walmart for groceries, they now have more reasons to stick to the brand. If some people usually shop at Costco, both Costco and Walmart have its appeal and the decision will rest with each shopper. For those who like to shop non-grocery items a lot and prefer the convenience, I don’t think Walmart Plus stands a chance against Prime yet. If some shoppers prefer the flexibility of ordering from multiple stores within one app, Instacart is the way to go.

Walmart Plus has tailwinds behind it. First, various stores across the country will power their delivery and be a huge competitive advantage. Few retailers can rival Walmart in this sense. Second, the ongoing pandemic and the explosion of grocery eCommerce are significant positive trends for Walmart. Moving forward, Walmart will likely continue to add more benefits to its membership program. The most obvious play is to expand the selection, pushing Walmart’s position in Figure 3 to the right. The more items are available for delivery, the more attractive Walmart Plus will be. Another idea is to mirror what Amazon did with Prime by throwing in other perks such as books, music, movies, etc…I suspect Walmart won’t increase Walmart Plus membership fees in the next two years at least. It took Amazon almost ten years to increase Prime’s fees from $79 to $99/year and another four years to $119.

The future isn’t without challenges for Walmart Plus. There is really subscription fatigue among consumers. How many consumers are willing to spend money on entertainment subscriptions (Netflix, Spotify, Disney Plus…), Amazon Prime or Instacart or Costco membership and then Walmart Plus. The economic uncertainty may be a factor as well. Folks may try to tighten their budget more and not have enough disposable income for another subscription. Plus, as Walmart moves to make its membership program more attractive, others don’t stand still. Instacart will continuously expand its partnership network. Amazon will definitely work to move more into grocery delivery.

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