Creative Destruction in Action: Competition for Amazon

We are witnessing an example of creative destruction in action: competition for Amazon

Joseph Schumpeter is credited with coining the phrase creative destruction. He used it to describe the process of new entrants to a market displacing (or sometimes replacing) existing firms. We are now witnessing creative destruction in action in the home delivery market. Amazon is facing serious competition from a serious competitor: Walmart.

When the COVID pandemic began, economist Jodi Beggs tweeted,

quote from Jodi Beggs about sending her entire stimulus check to Jeff Bezos

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Here in Silicon Valley we are now on day 174 of the COVID lockdown. We’re both retired and have enough gear in house to keep us amused. But there’s one overlooked upside to this pandemic. Amazon is now facing competition from a company that has a real competitive advantage. Safeway is moving into this market but is limited by not having as many locations. Even where they do have stores, quite a few are not offering delivery.

Walmart and Safeway logos

Amazon’s real threat is Walmart. Their competitive advantage is actual brick-and-mortar stores with an incredibly good inventory management system. I picked nine random locations. Adding our Silicon Valley house brought the total to ten. Walmart offers delivery to eight of them: Omaha, NE; Daytona Beach, FL; Amarillo, TX; Peoria, IL; Camp Hill, PA; Reno, NV; Portland, OR; Forest City, NC; and, of course, Silicon Valley, CA. No delivery was available to an apartment in Boston’s Back Bay neighborhood or a town on Cape Cod. Here’s a table showing where both Walmart and Safeway offer home delivery. The last column is reserved for towns with no Safeway presence at all.

Walmart and Safeway delivery availability

Walmart and Safeway delivery availability

I hardly need to add that Walmart is ubiquitous and has the capability of delivering almost anywhere. Amazon has a superior network of delivery options including UPS, USPS, and their own vans. I did not test remote islands off the coast of Maine or villages in Alaska accessible only by air. I leave that to others.

Delivery and Fees

We have not used Safeway’s service so I can’t comment on quality. We have placed ten delivery orders with Walmart. Nine were delivered cheerfully and on time. The tenth never did show up. Walmart phone support quickly cancelled the order and refunded everything. We placed the same order and it was delivered the next day. We’re overall pretty happy with the experience.

There is one small gotcha using the Walmart mobile app. You are allowed to specify whether or not substitutes are allowed for each product. And you’re allowed to add items to your order after you’ve checked out. You can do this until 1:45 am the day of delivery. But once you’ve checked out there is no obvious way to specify whether you want substitutions even for items you’ve just added to the cart. Don’t check out until you’re sure you are done shopping!

Safeway offers this warning. This is why we can’t evaluate substitutions and other ordering options. Frankly, we’re nervous about the cancellation time window.

Safeway order warning

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Both Safeway and Walmart offer unlimited delivery options. Walmart is slightly cheaper. If you don’t want to sign up for a monthly or annual service, the per-order fee and discounts are almost identical. Both offer discounts for large orders and/or for delivery time slots with excess capacity.

The Walmart app asks for a thumbs-up/down vote on your experience, then offers you an opportunity to tip the delivery guy. Our first major piece of advice is to always tip large amounts. Your reputation among the drivers makes a difference. Safeway does not allow tipping, although how they’d stop you from giving the driver cash at the door is a mystery to me. Here’s the pricing.

Comparison of delivery options and fees

A second bit of advice is to include some adult beverages in your order. You will get a driver who is over 21 and somewhat more responsible than others.

Conclusion

We order from both Amazon and Walmart regularly. Our impression is that Walmart will capture a good-sized chunk of the home delivery market. For starters, ordering groceries is fully integrated with ordering, say, cat food or sweatpants. Amazon has yet to realize serious benefits from their Whole Foods acquisition.

Walmart offers personalized service, a good mobile app, and pretty terrific customer service. The mobile app literally updates the shopping and delivery in close to real time. Amazon’s delivery times have become haphazard as supply chains are disrupted. Walmart, of course, has considerable monopsony power with its suppliers. They are unlikely to see disruptions anywhere near the magnitude Amazon has experienced.

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About Tony Lima

Retired after teaching economics at California State Univ., East Bay (Hayward, CA). Ph.D., economics, Stanford. Also taught MBA finance at the California University of Management and Technology. Occasionally take on a consulting project if it's interesting. Other interests include wine and technology.