Will Walmart+ Threaten the Dominance of Prime?

Over the last several years, Amazon has boldly entered brick-and-mortar retail through its Go and Fresh stores as well as its highly publicized acquisition of Whole Foods. Walmart has responded in tandem by pursuing omnichannel capabilities and digital acquisitions. This September, Walmart launched its Walmart+ subscription service following a similar business model as Amazon’s Prime offering.  While the company has yet to release subscription figures for Walmart+ members, our proprietary consumer research indicates nearly 1 in 4 consumers have already signed up for Walmart+ or used someone else’s Walmart+ subscription to place an order.  Our research also demonstrates significant degree of overlap within the Prime and Walmart+ subscriber bases today.

Breaking Down Prime Versus Plus

Both Prime and Walmart+ offer free same-day delivery on grocery orders over $35 dollars for a similar monthly and annual fee.  Walmart recently back-pedaled its order minimum, and now the two services provide free delivery on all non-grocery orders regardless of dollars spent. However, there are notable differences between Prime and Plus to explore:

• Number and Diversity of SKU’s. Amazon Prime has a much larger product selection, offering 3 million items for same-day shipping while Walmart+ currently offers roughly 160 thousand items. Prime boasts an additional 10 million items with free 1-day shipping.  Although Walmart.com offers free next-day delivery for members and non-members alike, the selection is currently 1/40^th of Amazon’s and is only beginning to include service for most major US markets.
• Ecosystem of Value-added Services and Experiences. Prime offers extra perks of Prime Day discounts, robust media streaming services, and Prime Wardrobe. Meanwhile, Walmart+ members can take advantage of 5-cent fuel discounts at Walmart and Murphy’s gas stations, member prices at Sam’s Club gas stations, and access to a Scan & Go for in-store shopping.

What’s Working for Walmart+

While Amazon’s breadth of selection and added media streaming services represent the gold-standard in retailer membership programs, Walmart+ is differentiated by Walmart’s status as a value leader and its incomparable reach and physical footprint in the US.

Customers already associate Walmart with their unbeatable prices in-store and this is only furthered by their well-crafted messaging around Walmart+ membership. Walmart is keen to point out that they do not inflate online prices (as some grocery delivery services have been criticized for) and that their membership fees pay for themselves with two monthly deliveries. Though their gas discounts are likely to only save the average driver 10-20% of their membership, for the 1 in 3 consumers who are concerned about the economy and their spending, every penny counts. And industry research shows consumers tend to place an outsized value on savings at the pump, which could prove especially loyalty-building over time.  The value positioning draws a contrast with Prime, whose price increases in recent years may feel fresh in some consumers’ minds.

Walmart’s unparalleled scale and reach in the US could help the retailer create stickiness with current Walmart shoppers as well as court a new consumer who does not shop inside its stores. There are about 5,300 Walmart locations across the 50 states, with about 90% of the population living within 10 miles of a Walmart store. Currently about half these stores are outfitted to offer same-day delivery, and we expect that number to rise.

Map of Walmart Locations via Business Insider

Walmart stores will be the primary points of fulfillment for same-day Walmart+ orders. This vast footprint of physical assets will allow Walmart to execute same-day delivery in a much larger geographical area than can be serviced efficiently by anyone else. This is especially resonant for need-it-now items in the fresh, grocery, and household essentials categories that are difficult to fulfill by mail.

Walmart Will Woo Current Shoppers with Greater Value

We believe the bulk of Walmart+ membership will be comprised of current Walmart shoppers, especially those who have turned to grocery delivery during the pandemic. There is simply no other merchant who can deliver fresh items as quickly or cheaply to as many people, including Amazon or 3^rd party providers like Instacart. Walmart+ speaks directly to the needs of the Walmart shopper and ensures that they can turn to Walmart for their everyday needs regardless of where they live or how they want to shop. This is in stark contrast to Target’s recently-shuttered subscription service that offered regular deliveries of bulk household goods at a discount: Target cites limited interest as customers increasingly opt for same-day delivery and curbside pickup options rather than being locked into a monthly delivery program.

Will Walmart Win Over Prime Members?

Our proprietary data from our late November consumer pulse survey show that many Walmart+ subscribers are also among the nearly 70% of Americans who subscribe to Amazon Prime. While some of these consumers may be testing the waters with Walmart’s new subscription service, the two offerings are distinct enough that if Walmart+ can maintain a high standard, many consumers might opt to keep both memberships, concentrating their grocery and general merchandise spend with these two giants.

Ecommerce Will Lead Future Growth

Grocery ecommerce has doubled or tripled its share during the pandemic, gaining traction across most age and income groups, and Walmart+ poises the retailer to continue capturing sales and new customers in this channel long after the pandemic.  Robust ecommerce offerings have now become table stakes as consumers seek flexibility and a consistent experience across channels.  Savvy retailers need to optimize their ecommerce offering as a way to build customer loyalty and gain share of wallet for consumers faced with an ever-increasing array of safe and convenient digital options.

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