The news: Amazon reportedly plans to expand its same-day fulfillment network to over 1,000 facilities by 2031, up from around 85 today, as part of its unyielding drive to speed up delivery, per Business Insider.
The aim is to have same-day fulfillment centers within a 10-mile range of 80% of US Prime members. That would significantly narrow Walmart’s advantage: Roughly 90% of the US population lives within 10 miles of a Walmart or Sam’s Club store, and the retailer has the ability to deliver orders to 95% of US households in less than three hours.
Why it matters: Same-day delivery is central to Amazon’s strategy for growing its share of everyday spending and, consequently, retail sales. As Doug Herrington, CEO of Worldwide Amazon Stores, noted in a podcast episode, when the retailer speeds up delivery, “the probability that somebody buys a product from us goes up. And what’s even more interesting is that if they buy it, they’re going to come back sooner, and they’re going to shop more when they do.”
The rollout of Amazon’s same-day perishables delivery service proves that point. Since the start of the year, the number of monthly active customers buying perishables has risen over 50%, while same-day orders with perishables have three times as many units on average as those that don’t, CEO Andy Jassy said on the company’s Q2 earnings call.
Implications for retail: An expanded same-day fulfillment network would accelerate Amazon’s grocery growth by getting Prime members accustomed to the ease and convenience of the retailer’s delivery services. That in turn could unlock a new level of growth for Amazon’s ecommerce business, given that groceries and fresh food rank as the product category most frequently purchased on delivery and online platforms, according to a survey from EMARKETER and DoorDash.
While that could narrow Walmart’s grocery advantage, traditional grocers like Kroger and Albertsons that lack the ability to compete with the two retailers on convenience and value will feel the most pain.
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