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.

Likely competition for Uber/Lyft in California. Grocery delivery is growing. Apple’s response to Epic’s lawsuit

Potential competition for Uber/Lyft in California

The two poster children of ride hailing companies in the US, Uber and Lyft, are having a legal fight with the state of California. The outcome of that battle remains to be seen, but if they lose, the companies already threatened to leave the state. Meanwhile, CNBC reported that at least 2-3 ride hailing startups talked about potentially swooping in to replace Uber and Lyft if they depart. One of those startups that I found interesting is Alto. Alto is a ride hailing startup that mainly operates in Dallas and Fort Worth. What differentiates Alto from their two bigger peers is that Alto’s drivers are salaried employees with benefits. Also, drivers don’t have to worry about gas or maintenance costs. Here is what their recruitment page says

Source: Alto

Some critics of AB5, the law that can potentially cause Uber/Lyft to leave California, say that the law is flawed in that it kills the flexible schedule that drivers, classified as contractors, enjoy. That is a valid point. Some do prioritize a flexible schedule over everything else. I have seen myself several drivers who just drive on the weekends to get some more money on this side gig. These drivers likely wouldn’t appreciate entering an employment contract that would likely require them to work more than they want. Clearly, in this case, AB5 likely won’t work.

That; however, doesn’t change the fact that Uber and Lyft’s refusal to classify drivers as employees can put drivers as disadvantage. Some drivers put in a lot of working hours, but do not earn enough after they take into account gas, car maintenance expenses and dead miles (hours when they drive around without any rides). Because they are not employees, they don’t have benefits like paid time off or insurance either.

There are two separate camps in this argument with virtually conflicting interests. Whether AB5 alone is a sufficient fix remains to be seen, but the existence of companies like Alto and its willingness to enter California’s market offer proof that there is an alternative model to what Uber and Lyft stand for.

Online grocery continues to grow amid the pandemic

Since March, Covid-19 has pushed online grocery to new heights that few could have predicted. According to Brickmeetsclick, even though growth has plateaued in June, online grocery sales reached $7.2 billion and an incredible 85 million orders.

Recent market developments suggest that the trend is likely to continue in the upcoming months. Shipt announced the drop of membership requirements and instead let customers pay $10 for a single order, $9 per delivery for 3 orders and $8 for 5 orders. Additionally, Walmart and Instacart recently partnered to provide same-day delivery in four markets across California and Oklahoma. Last Thursday, DoorDash entered the grocery delivery market with DashPass, a $10/month subscription which allows customers to order and receive groceries in about an hour. Last month, Uber joined the party with their own grocery delivery option through the main Uber and Uber Eats apps. Moreover, FreshDirect unveiled its expansion into New Jersey, New York and Connecticut.

Grocers and delivery services are working in tandem to facilitate more online grocery spend. Grocers let customers receive orders at their front door, pick up and drive up at stores. Delivery services lower barriers and compete with one another to acquire users. In the near future, this battle will be very fierce and the biggest beneficiary will be the end consumers.

Apple’s legal issues with Epic Games

Apple responded to Epic Games’ lawsuit over the App Store policies. In the response, Apple offered reasons why the court should let Apple continue to ban Epic Games’ apps while the legal battle rumbles on, including:

  • Epic’s alleged harm is not irreparable. Epic’s apps will be reinstated on the App Store if the game maker removes its own payment option, the cause of its violation of the terms of services, and adheres to the guidelines that Epic agreed to from day one.
  • Epic’s alleged harm is its own doing. The game maker first asked Apple for a special treatment by creating an Epic Store inside the App Store. Then, it asked Apple to open up the App Store by allowing more payment options. After the requests were declined, Epic Games decided to circumvent the App Store policies by offering its own payment scheme, suing Apple and launching a coordinated PR attack.
  • Apple does not engage in anti-competition practices and the App Store policies are to make sure that 1/ consumers’ privacy and safety are protected and 2/ Apple gets paid for its investments

The legal document is here and if you’re interested in this kind of stuff, you should have a read.

Personally, I don’t think Epic will win this legal battle. The App Store is Apple’s investment and intellectual property. Hence, Apple is entitled to enforcing the policies on the app marketplace, the same policies that Epic Games has agreed to when it launched its apps on the App Store. Whether Apple is wielding too much power is another matter for discussion, but if you created a marketplace and invests a lot of resources into it, it’s pretty difficult to understand the sentiment that you’re not allowed to benefit from your own investments or to enact and enforce policies that you see fit.

Plus, what happened, based on the emails exchanged between Apple and Epic, seems pretty distasteful and bully-like from the latter. On 6/30/2020, Tim Sweeney wrote to Apple the following, which is part of a longer email. His requests were rejected by Apple on 7/10/2020:

Source: Scribd

On 8/13/2020, Epic wrote to Apple, declaring its intention not to follow the App Store guidelines and to take legal actions if Apple retaliated. Apple subsequently wrote to Epic twice, informing the app maker of its violations and asking it to remedy the situation. Epic Games instead sued Apple for enforcing rules on…Apple’s own app marketplace.

Source: Scribd

Since I am not a lawyer, I’ll leave the argument on legal standings to the court and the lawyers from both sides, but from a common sense perspective, I don’t see a chance for Epic here. Hey app from Basecamp had trouble with Apple before. Instead of raising a legal fuzz, Basecamp raised the issue publicly on Twitter and engaged in discussions with Apple to resolve conflicts, which it did. And Hey didn’t even demand to have its way in the App Store like Epic Games did. That’s the way to do it, not the course of actions and manner that Epic Games pursued here.

This legal battle will leave Epic’s reputation tainted while also not doing Apple’s any favor.

Weekly readings – 22nd August 2020

What I wrote last week

I compared what is happening in Vietnam and New Zealand in the fight against Covid-19 and why it looks very bleak for America

I wrote a bit of analysis on Square, the owner of Cash App

Business

Instacart dominated the grocery delivery in the US

Second Measure on pandemic grocery spending
Source: Second Measure

A startup that promises to deliver groceries in less than 13 minutes in Turkey

An interview with the CEO of New York Times. He grew the subscriber base from the rock bottom of 22,000 in Q2 2013 to 6.5 million today

How Uber Turned a Promising Bikeshare Company Into Literal Garbage

Technology

Ben Evans on App Store and antitrust issues

A deep dive into iPhone 5C plastic cases

John Gruber on TikTok as a security threat

What I find interesting

The Canva Backlink Empire: How SEO, Outreach & Content Led To A $6B Valuation

To all Americans who are told all the nasty and misleading facts about Socialism & Communism whenever social benefits and safety nets are mentioned, please read this from your fellow American, who considers his move to Vietnam the best decision

Confessions of a Xinjiang Camp Teacher

A dazzling civilization flourished in Sudan nearly 5,000 years ago. Why was it forgotten?

Weekly readings 20th April, 2019

Half of Instacart’s drivers earn less than minimum wage, labor group claims. This is indeed an issue, but I am not sure if there is any wriggle room for Instacart to increase the minimum wage. From what I understand, it’s already a low margin business. Any pay raise for drivers will cut into the margin even further.

America’s Biggest Supermarket Company Struggles with Online Grocery Upheaval. A story on how Kroger has been transforming itself to stay competitive and avoid the ultimate outcome

Zoom, Zoom, Zoom! The Exclusive Inside Story Of The New Billionaire Behind Tech’s Hottest IPO. A profile of the CEO of Zoom, an imminent tech IPO this year. Eric Yuan was denied a US visa 8 times before getting one on the 9th try. Let that sink in.

Here’s How TurboTax Just Tricked You Into Paying to File Your Taxes. I used Turbo Tax this year to file my taxes and ended up paying $100 or so for the service. Though the service is advertised as free, there are numerous hidden fees that will end up on the final page of your application if you are not careful. Plus, several weeks ago, companies like Turbo Tax successfully lobbied Congress to stop IRS from building an online portal, which is a terrible decision.

In African Villages, These Phones Become Ultrasound Scanners. An example of how practical technology can positively influence and save life.

If you can. How millennials can get rich slowly. A short yet great read on personal finance.