Can Wal-Mart Deliver the Goods?

Can Wal-Mart Deliver the Goods?

Like putting a toe in the water before venturing in with your whole foot, Wal-Mart is testing the waters of grocery home delivery. Having run a successful two-year test in the San Francisco and San Jose areas of California, the supermarket giant is expanding the service to the Denver area and, perhaps, soon to a supercenter near you, too.

What's surprising is the timidity with which Wal-Mart is pursuing this option, one that could help it revive flagging sales. After all, its U.K. subsidiary Asda, which it acquired in 1999, operates the second-largest home-delivery service across the pond, and it offers delivery services in China via e-commerce company Yihaodian, and in Mexico through Superama. It may be a relatively new experience here in the U.S. -- though Peapod has been bringing home groceries for shoppers since its founding in the 1990s -- but, as Wal-Mart has said, "Grocery delivery for us is not new."

My Foolish colleague Rich Smith noted earlier this summer that, because there isn't the same customer density here in the U.S. as there apparently is in the U.K., Wal-Mart is content to let other companies blaze the home-delivery service first before jumping in with both feet.

That's all well and good, but it's currently ceding ground to rivals that can grab large swaths of market share. So even if this retailing 800-pound gorilla does make a big splash when it cannonballs into the pool, and Google are two competitors that aren't likely to easily give up whatever gains they make.

AmazonFresh, in particular, ought to be of primary concern, because it has the warehousing infrastructure in place to capitalize on the opportunity, one which analysts are forecasting will grow at a 12% compounded annual rate through 2017. In comparison, traditional brick-and-mortar grocery store sales will barely register a pulse at 0.2% growth.

Google, like Wal-Mart, is testing out its Shopping Express service in the San Fran-San Jose market (why do they get to try all the cool stuff first?) though it will deliver other goods besides just groceries, challenging more of what eBay is doing with its eBay Now service.

This is becoming a burgeoning market, and is the reason that Wal-Mart shouldn't wait too long to get its feet wet. Peapod, as mentioned, has a long history here, but the supermarket chain Safeway also offers delivery services (albeit in limited markets), as does -- a groceries-only service -- FreshDirect, and NetGrocer. In fact, the latter three, while not as well known as the larger "Wall Street" grocers, as ShopFoodEx calls them, are almost all nationwide in their coverage, or serve markets with very dense populations. (ShopFoodEx is international, too.)

Wal-Mart will have economies of scale and a broad-based distribution network already in place when it finally does roll out the service more broadly, but the longer it waits, the greater the chance it will miss out on making really big waves.

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