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Wal-Mart's Good to Go in Grocery Deliveries

By Rich Duprey – Feb 4, 2014 at 3:40PM

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The retail giant wants to bring its produce to your front porch.

Going grocery shopping in the Mile High City just got easier, as Wal-Mart (WMT -0.36%) expanded its To Go online-shopping program to include free in-store pickup. Just like regular merchandise you can buy on the retailer's website and then have shipped to a store for free, groceries have been added to the shopping list, at least in Denver, San Jose, and San Francisco. 

Source: Wal-Mart.

While Peapod mastered the concept of online grocery shopping and home delivery long ago, it's gained more attention in the past few years as companies like Amazon.com (AMZN 4.46%) entered the market. Its AmazonFresh program delivers everything from produce and meat to diapers and DVDs to your door. Despite groceries being a low-margin business, Amazon believes they can be a loss leader of sorts, making up on electronics sales at the same time it's bringing you a dozen eggs. 

Despite reports last year that Amazon wanted to enter as many as 40 new markets, the actual rollout has been slow. In its earnings conference call the other day, Amazon reiterated several times that the program is still in its early days.

That's because delivering groceries is not so simple or easy as shipping a big-screen TV, especially when it comes to produce, because spoilage has to be taken into consideration. Even if Amazon is building new warehousing facilities that feature refrigerators, Wal-Mart, Kroger, and Safeway would still have a leg up on it as their "warehouses" -- i.e., their supermarkets -- are already in most neighborhoods. And Kroger, which just completed its acquisition of Harris Teeter, is looking to expand the grocer's online-shopping experience.

Both Peapod and FreshDirect also have established operations in many metropolitan areas, which suggests Amazon might not be the 800-pound gorilla in this space. 

Yet Wal-Mart has also been painfully slow in rolling out its own program, which is available in just three markets. But Wal-Mart is not some johnny-come-lately to home grocery delivery: It has extensive experience in the field, as its U.K.-based Asda unit, which it acquired in 1999, operates the second-largest home-delivery service, and Wal-Mart offers delivery services in China via e-commerce business Yihaodian and in Mexico through its Superama chain. 

But the expansion Wal-Mart's developing with in-store pickup shows that it continues to build on recent successes. The company's ship-to-store model was emulated by numerous other retailers this past holiday season, and it's proved popular enough that Wal-Mart's cost-conscious consumers may want to apply it to grocery shopping. With free pickup at the store, or home delivery for $5 to $7, Wal-Mart should be able to offer the service to more markets eventually.

While you never want to discount Amazon as a competitor, particularly because of its willingness to operate at a loss on its ventures, Wal-Mart is equally a heavyweight that can't be ignored. That it continues to evolve the program, even if it's in a very limited fashion, indicates the retail giant could still deliver for investors.

Rich Duprey has no position in any stocks mentioned. The Motley Fool recommends Amazon.com. The Motley Fool owns shares of Amazon.com. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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