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Loosening Walmart's vise-grip on low-income consumers

Illustration of a vise grip squeezing a frowning rollback smiley face
Illustration: Aïda Amer/Axios

For some three decades, Walmart has held onto the massive market of low-income U.S. consumers, defending this territory from newcomers. But threats to its dominance are piling up.

What's happening: Amazon is emerging as a substantial rival to Walmart in the fight for an estimated $624 billion-a-year market, joining other retailers and brands and betting that — as it has in so many industries — it can capture a large part of this much-overlooked cohort.

The big picture: With competition rife for affluent and mid-range retail customers, the low-end market is the new, fierce battleground for big merchants. At stake is a third of U.S. households — those earning $50,000 or less a year — 88% of whom visited a Walmart last year, according to a recent survey by GlobalData Retail.

  • Since the 1980s, Walmart has come to dominate this sector of the consumer market with what so far has been an unbeatable strategy: go to every town (the juggernaut has 5,362 locations and sits within 10 miles of 90% of Americans) and undercut everyone else's prices.

But now it is facing competition against both its footprint and its prices.

  • Grocery's deep discounters like Aldi and Lidl from Europe have started to make a dent in Walmart's market share. Aldi has some 2,000 stores in 35 states, including in Bentonville, Arkansas, Walmart's home town.
  • "Aldi has built a cult-like following. ... The allure is all in the rock-bottom prices, which are so cheap that Aldi often beats Walmart at its own low-price game," CNN"s Nathaniel Meyersohn reports.
  • And the dollar giants are refusing to be left behind. To fight against Walmart's increasingly popular buy online and pickup-in-store model, Dollar General has developed an app that lets its shoppers do the same — capitalizing on its 15,500 U.S. locations.

Now Amazon, with its deep pockets and track record of disrupting industry upon industry, is entering the ring.

In a series of moves, Amazon is attempting to make itself more accessible to the tens of millions of lower-income U.S. households.

  • The company is leaning into its strong suit, injecting high-tech delivery into the fight. It is assuming that such shoppers want the same speedy delivery it offers to all its other customers — a perk that low-income households have long been excluded from, says Fred Killingsworth, a former Amazon manager who runs a retail consultancy.
  • Amazon has joined a New York pilot, along with Walmart and Shoprite, that lets food-stamp (SNAP) beneficiaries buy groceries online. It also rolled out a discounted Prime membership at about $72 a year, paid monthly — compared to the standard $119 per year — for those on SNAP or Medicaid.
  • It's adding lockers around the country at places like Kohl's to give customers worried about packages being stolen from their stoops a place to pick up goods.
  • It has launched a slew of private label products, ranging from sofas to button-downs, at cheap prices to compete with Walmart brands like Great Value and Time and Tru.

But, but, but: While Amazon may be able to make a dent in apparel or appliance sales to less-affluent shoppers, the most lucrative business is grocery, and the e-commerce giant will have much more difficulty winning that game, experts say.

  • "I think Amazon will have some impact but I don’t see it as being a major disrupter in this space," says Neil Saunders, managing director of GlobalData Retail.
  • "The focus has to be on private label at this end of the spectrum, especially when dealing with Aldi, as it’s all private label. Walmart’s private label has resonated with consumers for a long time," says Charlie O'Shea of Moody's Analytics. "Amazon is a new, niche player in food, and (Amazon-owned) Whole Foods is not viewed as a discount competitor."

Still, Amazon is beginning to chip away at many of its traditional weaknesses with the lower end of shoppers.

  • It's expanding its suite of private label products to food, recently adding Happy Baby for milk, cheese and trail mix.
  • And Amazon is considering opening its own chain of discount grocery stores to attract customers who don't want to pay Whole Foods prices.

Amazon and Walmart did not respond to requests for comment.