The news: Several months after Amazon began testing a grocery delivery service for consumers who don’t belong to its Prime loyalty program in select cities, the retail giant plans to expand the offering nationwide, per Bloomberg.

• The retailer was “pleasantly surprised” at the number of consumers who used the service during the pilot, Claire Peters, the worldwide vice president of Amazon Fresh, told Bloomberg. She also noted the retailer plans to offer delivery from Whole Foods Market stores to non-Prime members in the “very near future.”
• The expansion coincides with Amazon’s plans to resume opening Amazon Fresh grocery stores next year after roughly a year-long pause.

Why it matters: Groceries are one of the few retail categories that Amazon doesn’t dominate and the leading player in the space is its chief rival, Walmart.

• Walmart has grown its lead in the US grocery market over the past year. It accounts for over one in four dollars that US consumers spend on groceries, which far outpaces its next-closest rival, Kroger.
• That strong position is helping it grow its retail media business. Our US digital ad revenue forecast expects Walmart’s advertising revenues to grow 40.4% this year, outpacing the rate of every other large company.

While Amazon has long sold a massive number of household staples online, it rightly recognizes that physical stores are where the vast majority—88%, according to our grocery forecast—of sales take place.

• However, its initial attempt to develop technology-focused Amazon Fresh stores fell flat. It is now in the midst of redesigning its existing stores to increase selection and add elements such as in-store Krispy Kreme doughnut shops.

The big challenge: If Amazon wants to present a serious challenge to Walmart, it needs to rapidly grow its physical footprint.

• It operates just 44 Amazon Fresh stores and around 500 Whole Foods locations.
• That pales in comparison to Walmart, which has over 4,600 US stores, and routinely boasts that 90% of the US population lives within 10 miles of a Walmart store.
• Unless Amazon buys a grocer with a large number of stores, it will face a steep uphill climb.

Go further: Read our Retail Media Forecast H2 2023 report.