July 8, 2010
Wal-Mart (NYSE: WMT ) may be the whipping boy for the anti-globalization set, but even the retail titan is challenged by Amazon.com (Nasdaq: AMZN ) and its cut-rate online business model. Just as traditional retailers such as Wal-Mart and Target (NYSE: TGT ) have expanded into groceries in order to drive consistent traffic to their stores, Amazon, too, has increasingly moved into the supermarket aisle.
Amazon just began selling fresh food and household products in the U.K. and Germany. While Amazon already flogs these goods on its U.S. site, these are the only two countries in Europe where it has such a presence. Amazon's move challenges traditional supermarket heavyweights such as Tesco (Nasdaq: TESO ) , which has been trying to push its own online initiative in the U.K. Successful launches in these two competitive national markets could lead Amazon to move into other European grocery markets.
The news should be equally good for well-established consumer-goods players such as Procter & Gamble (NYSE: PG ) and Kraft (NYSE: KFT ) , which can leverage the ubiquity of Amazon's presence into greater sales and mindshare. Such global companies can further consolidate their positions against local rivals. Products of both companies are featured among the 22,000 food offerings on the company's U.K. site. Perhaps more amazingly, Amazon also offers perishable items such as fresh vegetables and meats.
The Seattle titan doesn't deliver the packaged food itself. Nonperishable wares go through the post, much like Amazon's more conventional consumer products. Perishable items are fulfilled by third parties such as local food retailers.
Amazon has shown a willingness to move into almost every area of retail, using its well-known brand and website as an effective distribution portal. By avoiding a delivery infrastructure and many of the other high costs involved with traditional retail operations, Amazon has made very effective use of its capital. Traditional grocers have been trying to harry Wal-Mart with lawsuits -- but perhaps they should be more concerned by Amazon.