Amazon Has A Risky Grocery Strategy To Take Down Wal-Mart

Amazon keeps cutting grocery prices in an attempt to take down competitors like Wal-Mart, Target, and K-Mart.

The company believes it can draw in more customers by becoming a go-to for household items, groceries, and pet supplies, reports Siri Srinivas at The Guardian.

If the strategy works, it could lead to customers who buy more frequently than those seeking electronics or furniture on the e-commerce site.

Amazon has been aggressively investing in its grocery category. One person recently wrote about their experience buying everything on Amazon Prime, and the business could be lucrative as ageing Baby Boomers become more hesitant to leave the house.

But analysts and shareholders’ patience is wearing thin.

Amazon reported an operating loss of $US437 million last quarter, and the share price is down 12% in the past year.

The Guardian also notes that Amazon’s price-cutting could have negative consequences for the industry.

“This pricing arms race can only result in mutual capitalist destruction,” Srinivas writes, citing experts. “Wal-Mart will likely be unable to keep up.”Wal-Mart is also facing pressure from dollar stores.

Dollar Tree is in the process of buying Family Dollar, meaning the company will have a total of 13,000 stores.

This gives Dollar Tree more leverage to negotiate with suppliers for lower prices.

But Wal-Mart isn’t going down without a fight.

CEO Doug McMillon recently told investors that the brand has a renewed focus on offering the cheapest products.

“Price matters to our customers and it always will,” McMillon said. “As a company, being a low cost operator is in our DNA. This will never change and we will be the price leader, across a broad assortment, everywhere we operate.”

Disclosure: Jeff Bezos is an investor in Business Insider through his personal investment company Bezos Expeditions.

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