Here’s How Walmart Can Benefit From Partnering With Uber and Lyft
Recently at its annual shareholders meeting, WalMart (NYSE:WMT) announced a new pilot program under which it will partner with services such as Uber and Lyft for last mile delivery of groceries ordered online by its customers. Groceries account for more than 50% of Walmart’s revenues and providing convenient delivery options to consumers in this segment can boost its revenues. Among Walmart, surely, are customers of Uber and Lyft, as well, which should build on the issues of trust. This innovative move by Walmart provides convenience to the consumers without the need for the company to create a delivery infrastructure around last mile deliveries. If the company is able to effectively leverage the network of services such as Uber and Lyft, it can lower its delivery costs without compromising on consumer convenience.
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Walmart is working on several initiatives to compete with Amazon, which is looking at faster delivery options to woo consumers. Convenience in grocery purchases is one area where both companies are focussed to attract more users. Walmart’s solution to partner with Uber and similar companies to provide last mile deliveries can prove to be extremely effective. According to 1010 data, nearly 13% of Walmart users in the U.S. also use Uber or Lyft and this number is higher at 18% in Denver and Phoenix where Walmart is piloting this partnership. This is an indication of the trust in these companies by Walmart consumers and this could be a major factor in the success of this program.
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According to our estimates, Walmart’s revenue per square foot in the U.S. will increase from $ 442 in 2016 to $ 488 by the end of our forecast period.
Growth of the online business is one of the key drivers behind this increase in revenues. As Walmart focusses on improved delivery efficiency and e-commerce initiatives, its online business should see substantial growth. The partnership with Uber and Lyft is an innovative step and should help the company boost its e-commerce efforts. As consumers prefer seamless and quicker delivery options, this strategy to use an existing network which is trusted by consumers can work in the favour of Walmart. It also reduces pressure on margins as the costs incurred in using these services can be covered by the delivery charges levied to the customers and it does not require any investment in transportation infrastructure.
Groceries account for more than 50% of Walmart’s revenues and since spending on groceries is not related to macroeconomic factors it is one of the core areas of focus for Walmart. Convenient grocery delivery options can provide a boost to grocery sales and increase the average revenue per square foot for the company. If this metric increases at a faster pace compared to our estimates and reaches $536 by the end of our forecast period, there can be a 10% upside to our price estimate.
We believe as Walmart takes bold initiatives to develop a competitive edge against Amazon, innovative faster delivery options such as the partnership with Uber should work to the advantage of the company.
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