Amazon’s grocery ambitions continue to reverberate through grocery sector

Amazon’s (NASDAQ:AMZN) explosive announcement to expand its grocery delivery business to same-day delivery for customers in more than 1,000 cities continues to reverberate through the grocery sector on Thursday, weighing on competitors including Kroger (KR), Walmart (WMT), Instacart (CART) and DoorDash (DASH).

The move into same-day grocery delivery builds on Amazon’s (NASDAQ:AMZN) strategy to deliver to 4K cities and towns by the end of 2025 and its $4B investment to expand its rural delivery network by 2026.

It also provides the company with another lever of growth in what many consider an under-penetrated market.

“We view the move positively for Amazon as it could also spur growth in the all-important everyday essentials category, which outperformed the rest of Amazon’s business and represented 1 out of 3 units sold in the second quarter,” said Truist analyst Youssef Squali.

“Unlocking the opportunity in perishables is something Amazon has focused on for the last several years, and we believe the company’s move to expand the breadth and depth of its same-day delivery capabilities has played a critical roll in the rollout of perishables across the network,” Squali added.

The financial benefit for Amazon (NASDAQ:AMZN) could be dramatic given the $1 trillion market in the U.S. for groceries and household essentials. While it will take some time before investors see any reward to Amazon’s bottom-line, Evercore ISI’s Mark Mahaney sees Amazon (AMZN) growing its grocery business from $100B to $200B-$300B, while at the same time put added pressure on Instacart (CART) to lower fees, or increase promotions, further weighing on margins.

“This is especially meaningful to CART given its relatively thin standalone delivery profitability and reliance on high-margin ad revenue,” he says.

For DoorDash (DASH), perishable deliveries is de minimis today, says Truist’s Squali.

“We believe companies that have been doing grocery delivery including for perishables are more at risk from Amazon’s move,” than DoorDash (DASH), he says.

However, Mahaney argues that if Amazon (AMZN) can succeed in training customers to bundle groceries with general merchandise, it could reduce the frequency for DASH’s non-restaurant orders.

For now, the winners and losers in Amazon’s announcement are evident by Thursday’s stock performances with Instacart (CART) still suffering the greatest loss, down a total of 14% over the past two days. Meanwhile, DoorDash (DASH) is off by a little over 3%, Kroger (KR) down 6%, and Walmart (WMT) lower by 2.5%.