Home Delivery Service Could Deliver New Growth to Walmart

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WalmartWalmart's (WMT) latest move to extend its vast logistical reach directly to customers' homes could bring new growth opportunities to the world's largest retailer. It is launching an online grocery delivery service -- "Walmart To Go" -- that allows customers to purchase food, health-and-beauty products, medicine and other basic household goods online and have them delivered to their doors for fees starting at $5. However, a minimum order of $49 is required. Walmart competes with other major retailers like Target (TGT), Costco (COST), Amazon (AMZN) and Best Buy (BBY).

Our price estimate for Walmart stands at $74.46, roughly 35% higher than the current market price.

Will Home Delivery Take Hold?

Walmart is testing the home grocery delivery service in San Jose, Calif. We believe with increasing modernization and Internet penetration, it is likely that customers will be more aware about prices, and at the same time, display a shifting preference toward spending less time running errands. There are a large number of customers who dislike spending weekends on grocery shopping.

The home delivery alternative could tap pent-up demand among such customers. According to survey results from Booz & Co. and the Grocery Manufacturers Association, about 62% of shoppers research online deals before heading out to shop at least 50% of the time.

At present, Walmart is facing increasing price competition from dollar chains and online retailers. Customer traffic has also weakened lately. Since 2007, Amazon has operated its Amazon Fresh grocery delivery service in Seattle. It rolled out a new service in parts of Seattle, "AmazonTote" that allows shoppers to receive select merchandise (beyond groceries) once or twice a week. Amazon is presently looking to expand its home delivery service and started recruiting for the same.

We believe Walmart's home-delivery service has the prospect of being successful on a larger scale.

See our complete analysis of Walmart

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