Not only is China in the game, but Amazon is also eyeing "instant delivery" and wants to "fight" with Walmart

Amazon intensifies "instant delivery" in the U.S., directly competing with Walmart.

As previously mentioned by Wall Street Watch, on August 13, Amazon announced that customers can purchase fresh groceries and enjoy same-day delivery. The expanded service now covers over 1,000 cities, with plans to extend to over 2,300 cities in the U.S. by the end of the year.

According to news from the Wind Trading Desk, a recent research report released by JP Morgan analyst Doug Anmuth and others shows that by the end of this year, Amazon's same-day delivery service for fresh groceries will double its coverage from over 1,000 cities to over 2,300 cities, with free delivery for Prime members on orders over $25.

The report predicts that this grocery expansion plan, combined with low prices, a leading selection of products, and fast delivery speeds, will support Amazon in continuing to expand its leading advantage in the U.S. e-commerce market amid intensified competition from rivals like Walmart.

Targeting the Low Penetration Fresh Grocery Sector

Amazon's aggressive entry into the fresh grocery instant delivery market is backed by the enormous potential of the U.S. grocery retail market.

Data from the report shows that consumer packaged goods and groceries (CPG/Grocery) are the largest retail category in the U.S., accounting for about 43% of adjusted retail sales, but its online penetration rate is only about 15%, providing ample growth space for e-commerce platforms.

Amazon's grocery business has already reached a considerable scale.

The report states that by 2024, its grocery business revenue in the U.S. will exceed $100 billion, accounting for more than 20% of its total gross merchandise volume (GMV) in the U.S. Since acquiring Whole Foods in 2017, its sales have grown by over 40%, and the average monthly spending per customer at redesigned Amazon Fresh stores has also increased by over 20%.

This expansion is part of Amazon's broader logistics investment. The company previously announced a $4 billion investment, planning to double its rural delivery network by 2026, adding over 200 new delivery stations, which will enable the delivery of over 1 billion packages annually to customers in more than 13,000 postal code areas.

The JP Morgan report points out that this move will not only increase Amazon's "wallet share" among users and boost purchase frequency but also help solidify the pricing power of Prime memberships, with expectations that Amazon may raise Prime membership prices by 2026.

Market Share Counterattack Launched

Amazon's actions are also interpreted by the market as a direct counterattack against competitor Walmart.

Data from the report shows that Walmart achieved a year-on-year increase of 80 basis points in U.S. e-commerce market share in 2024, surpassing Amazon's increase of 65 basis points, thanks to its pricing strategy and improved delivery services.

About 60% of Walmart's U.S. sales come from its grocery business, making its expansion in the e-commerce sector quite effective. However, Amazon is attempting to reclaim lost ground through a combination of strategies. According to third-party agency Profitero, Amazon has been the lowest-priced retailer in the U.S. for everyday essentials for eight consecutive years. **

JP Morgan believes that Amazon's low-price strategy, leading product selection, and scale, combined with the expansion of its same-day fresh delivery service, will enable it to capture more consumer demand and support Amazon's continued market share growth in the U.S. e-commerce market.

The report predicts that by the end of this year, Amazon's market share in the U.S. e-commerce market will increase by 140 basis points to approximately 47%, far exceeding Walmart's expected growth of 100 basis points to about 8% market share.

At the same time, Amazon's operational efficiency is also improving, with its second-quarter shipping costs rising 6% year-on-year, far below the 12% growth rate in order volume, indicating that Amazon has the capability to absorb the additional order volume from grocery expansion without significantly impacting profit margins.

The report forecasts that Amazon's North America operating profit margin will reach 7.6% in the third quarter, an increase of 170 basis points year-on-year, and will reach 7.7% by 2025, an increase of 130 basis points year-on-year.

Grocery delivery platforms like Instacart under pressure, but long-term benefits expected

The news of Amazon's grocery business expansion poses direct pressure on other players in the instant delivery space, with grocery delivery platform Instacart's stock price dropping over 10%.

JP Morgan believes that this sell-off is an overreaction.

The report analyzes that Instacart has unique competitive advantages. Its platform features over 1,800 retail brands and provides enterprise-level store technology support for more than 600 retail brands. With over a decade of accumulated data, Instacart has built barriers in handling bulk weekly grocery orders with numerous SKUs and high average order values.

Data shows that for orders with an average order value exceeding $75, Instacart holds over 70% market share.

However, risks still exist. For overlapping users who use both Amazon Prime and Instacart, Amazon's free delivery service (for Prime member orders over $25) may erode Instacart's user growth and the appeal of Instacart+ memberships, especially for small "top-up" orders.

But from another perspective, Amazon's deeper involvement could also act as a catalyst for growth across the industry. As the e-commerce giant drives the online grocery process, consumer habits will accelerate, which may benefit large retailers like Kroger, Costco, and Albertsons that have already partnered with Instacart, thereby expanding the entire third-party instant delivery market.