Amazon.com, Inc. (AMZN), Wal-Mart Stores, Inc. (WMT), Target Corporation (TGT): The Big Retail Battle For The Grocery Aisle

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While Amazon.com, Inc. (NASDAQ:AMZN) seems to be taking on some risk selling groceries that will perpetuate its already low margins in hope that consumers will also buy higher-margin items like electronics along with their groceries, this model works much better for brick-and-mortar. Wal-Mart Stores, Inc. (NYSE:WMT) doesn’t have to deliver groceries and take on that burden and cost like Amazon does, so it makes more sense and seems to be more profitable for them to offer groceries to consumers. Not only that, its huge economies of scale allows Wal-Mart to sell a huge amount of groceries (nearly a quarter of all of the U.S. market), and small margins applied to massive revenues adds up.

Target Corporation (NYSE:TGT) is currently immersing itself deeper into the game by gaining better control of its distribution network. It is following in Wal-Mart’s footsteps. Both Target and Wal-Mart Stores, Inc. (NYSE:WMT) can be successful at selling groceries with their physical stores, and groceries do tend to draw more customers to buy higher-margin items as well. This is much easier to pull off with physical stores than it is for an online-retailer like Amazon.com, Inc. (NASDAQ:AMZN), because delivering groceries is not as much of a concern cost-wise when your physical stores can hold groceries and fresh produce in freezers and refrigerators while they are waiting to be sold. This also gives physical retailers less of a logistical challenge if they don’t have to deliver.

One long-term positive takeaway for Amazon.com, Inc. (NASDAQ:AMZN), even if groceries turn out to be a losing proposition profit-wise in the short-term, however, is the building up of the company’s fleet of delivery vehicles. If it build its fleet large enough, it may be able to cut out its current delivery middlemen such as United Parcel Service, Inc. (NYSE:UPS) and FedEx Corporation (NYSE:FDX), thus reducing overall costs. Maybe this strategy will pay off in the future and help to more than offset the low-margin grocery business. As of now, however, Wal-Mart Stores, Inc. (NYSE:WMT) is the grocery king of the retail world.

Joseph Harry owns shares of Wal-Mart Stores. The Motley Fool recommends Amazon.com. The Motley Fool owns shares of Amazon.com.

The article The Big Retail Battle For The Grocery Aisle originally appeared on Fool.com.

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