Walmart is the latest company looking to build a super app.
Thirty-three years ago, in 1988, in Washington, Missouri, the first Walmart Supercenter opened its doors. The store concept itself took a page from the European hypermarkets, which had begun dotting the suburban landscapes there in the mid- to late-1960s — a vast physical store footprint that sold everything from general merchandise to groceries, offering ample (and free) parking.
When Walmart reported its Q4 2020 earnings last week, CEO Doug McMillon described a very different “super” concept at the center of Walmart’s future: the "super app." He may not have used those two words, but the Connect concept — and the flywheel graphic he spoke to – is the super app notion to a tee.
Moving Walmart from a “preferred destination” to the consumer’s “primary destination” is how he articulated the strategic relevance of the many spokes coming from the Walmart core: the “interrelated ecosystem” of physical and digital; the expansion of its third-party marketplace with Shopify; the focus on healthcare via Walmart Health centers; the investments in eCommerce, logistics, supply chain and inventory to match demand with supply and consumer fulfillment preferences; the promise of Walmart+; the JV with Ribbit Capital to provide banking services to its customers and employees; and the availability of BNPL options with Affirm to appeal to a new user demographic.
Walmart is not alone in seeking super app status with the consumer. The concept has become the strategy du jour for many — from FinTech to Big Tech to banks and telcos everywhere in the world, all of whom want to be the consumer’s digital front door that connects them seamlessly and securely to the many adjacent ecosystems that await.
And for which payments is the key to unlocking those new commerce opportunities.
It’s a big bet from a super app contender whose starting point is the physical store, and whose conviction is that physical remains a dominant retail channel — and that it can create what McMillon described as the "compelling store experience" that will keep consumers walking inside of them.
And it's a contender that faces enormous competition from digital platforms, including Amazon and others, who placed their bets in a very different way when digital was nascent and whose early adopters are today’s super-connected consumers. As a result, they are already many connected ecosystem steps and hundreds of millions of consumers ahead of Walmart.
From Store To Marketplace To Super App
For Walmart, the U.S. consumer and the U.S. retail scene in 1988, the Supercenter was a gamechanger – a one-stop, 24/7 shopping destination marked by Walmart’s everyday low price value proposition for the 90 percent of the U.S. population living within 15 minutes of a Walmart store. The Supercenter concept was a format and a strategy that helped catapult Walmart into becoming not only the largest retailer in the U.S., but also the largest purveyor of groceries in the country.
That is, until Amazon’s online “supercenter” helped consumers trade parking lots for Amazon Prime’s free shipping, vast physical store footprints for billions of SKUs from third-party sellers accessible by app or desktop anytime and anywhere, store checkout lines for one-click payment using registered card credentials, and the grocery store for online ordering and delivery and auto-refills for staples and other pantry items.
PYMNTS' own data on the percentage of retail spend and overall consumer spend has been tracking the horserace between Amazon and Walmart over the last several years — one that now reflects more or less a dead heat for the share of overall consumer and retail spending — except for one notable observation: Walmart’s share of both is slipping at the same time that Amazon’s is increasing.
Amazon unbundled the store and the brand (much to the dismay of many of them) from the shopping experience, and chipped away at Walmart’s share of general merchandise spend, including clothing, home furnishings, toys and games, and accessories. Over the years, Amazon has evolved from an online store to an online marketplace that brings third-party sellers of traditional retail goods and potential buyers together on the Amazon platform to become what we call a dynamo: a many-armed matchmaker whose tentacles spread far and wide, adding streaming content, prescriptions, connected devices, wearables that connect to healthcare ecosystems, and connections to physical stores with Whole Foods, Amazon Go, 4-Star Stores and Amazon Books.
At the same time, Amazon added depth and breadth to its eCommerce offerings, and took the Amazon checkout experience to other sites on the web via Amazon Pay. Amazon’s users can connect to all of these related services and platforms without ever leaving Amazon — which is where six in every 10 consumers start their search for what to buy. By becoming a dynamo, Amazon has laid the foundation for becoming a powerful super app.
That evolution exposed a jarring crack in the physical store armor and big digital shift that McMillon told analysts Walmart hadn’t been fully prepared to address. Thus, the Connect + flywheel = super app strategy, along with the $14 billion in capex they have allocated to build it out.
But Walmart doesn’t just have to worry about dynamos and super apps like Amazon. Other matchmakers are competing for a share of Walmart customer spend. In fact, every tentacle of Walmart’s super app strategy faces competition from another matchmaker or dynamo.
Going To The Online Grocery Store
Take groceries — a critically important category for Walmart, one that drives more than half of their sales. In 2020, Walmart’s 2020 grocery sales were $341 billion from its 4,756 store locations, including Sam’s Clubs.
The competition for grocery spend used to be determined by drive time, something that Walmart’s 4,756 store locations within a 15-minute drive of 90 percent of U.S. consumers had always assumed would be its moat. Until Target and others upped their grocery game, including curbside pickup and delivery. And Instacart unbundled the grocery store from buying groceries.
Instacart makes it possible for individual consumers, personal shoppers, supermarkets and consumer product companies to engage on its platform, and for a consumer to shop from stores that might have otherwise been too inconvenient to drive to — including one of Walmart’s biggest competitors, Costco.
A consumer who is likely to be working from home well after the population is vaccinated is now a consumer who no longer has to allocate a weekend or an evening — and the hour or more round trip — to buy food for her family. She can if she wants to, but now she has a choice to use a variety of matchmakers like Instacart, dynamos like Amazon and grocery stores with a digital-first portfolio like Target and Kroger.
Naturally, that’s excellent for the consumer, great for the supermarkets that capture new customers and orders, and very bad for stores, like Walmart and others, as they see their grocery share slip. As more orders move online, the whole competitive dynamics of the grocery industry will also change — driven by a consumer who values her time and has a choice in how, where and when she goes grocery shopping. Including those consumers who once could only use food stamps in the store to make grocery purchases and now have online alternatives to do so.
Even though Instacart isn’t a super app contender — yet — it’s a big threat to Walmart’s super app plans.
Going To The Doctor ... Or The Pharmacy ... Or The App
Then there’s healthcare — a segment of the economy that’s roughly 18 percent of U.S. GDP and whose digital shift has only accelerated over the last year. Telehealth options unbundle seeing the doctor from going to the doctor’s office, and makes healthcare more accessible and affordable. According to many experts, including the physicians I have spoken with, telemedicine reduces the need for an in-person visit nearly 85 percent of the time.
Traditional providers of healthcare, along with many HealthTech startups, have aimed their tech — and creative payments options — at a consumer who is now the largest healthcare payor. Pharmacies are becoming healthcare centers with apps and integrated commerce capabilities, including prescriptions.
None of them are super apps yet, but they and every super app — Amazon, Google, Apple — are trying to get into this space, and will compete with Walmart to be that digital front door. Walmart is betting the consumer, smartphone and app in hand, will opt for a physical front door instead.
The Digital-First Way To Pay And Borrow
And then there are financial services.
PayPal and Google are just two examples of FinTech and Big Tech dynamos that have scaled their platforms well beyond their initial starting point of buy button and search, respectively. Both have added new products and features that provide additional value to their platform participants while attracting new ones. At the same time, they have extended their tentacles into adjacent areas and added related platforms inside of their own — including savings, investing, banking and banking-like services, deals, and even accessibility to crypto, in the case of PayPal.
Both have also added incentives to keep sellers on their platforms and attract new ones. And both have payment credentials that allow their users to engage in many different activities once consumers enter their digital front doors — including paying for purchases when shopping at Walmart and using Google Assistant to order and pay.
That won’t make Walmart’s super app ambition to move consumers to a new digital “bank account” a slam dunk. Establishing a new digital bank account is easier than it’s ever been, but becoming the primary bank account is not without its own set of built-in hassles, like changing direct deposit and bill pay coordinates. At the same time, the percentage of the population that’s unbanked is at an all-time low — 5 percent, according to Fed statistics. That means Walmart faces the challenge of giving consumers a better alternative than they have today — while contending with others with similar ambitions, including buy now, pay later players and neobanks, which are also targeting the mass-market consumer.
What’s Next For Walmart And The Other Super Apps
The idea of a digital front door — a super app — was already an idea that more than half of all consumers found appealing, per a PYMNTS survey in the summer of 2019. Since then, the incredible growth in users and engagement seen by many of the existing super apps and super app contenders has only validated the notion that consumers want a more streamlined way of navigating the digital world.
Dynamos are riding the tailwinds of the massive shift to digital across every aspect of the economy — how consumers shop, eat, buy food, get healthcare, spend leisure time, travel, work, live at home, bank, stay connected and pay. More than just a COVID-induced reaction, more than 80 percent of the more than 50,000 U.S. consumers that PYMNTS has studied since March 6, 2020 say that some or all of their digital behaviors — doing less in the physical world and more in the digital world — will stick well past the day when people are comfortable being out and about in the physical world the way they once were.
Dynamos are not only the future — they are an emerging part of the present.
There are more than 144 million consumers who shifted digital when buying retail products, ordering food from restaurants or shopping for groceries, meaning that they are doing less in the physical world and more in the digital world for those same activities since March of 2020 — nearly 80 percent of whom also say they’ll stick with all or most of those digital habits. It is they who will decide whose digital front door offers them the best access to the most relevant services that make the lines between physical and digital indistinguishable, which is how consumers now live. This is a consumer who has now been immersed in a digital-first world for more than a year and who has a different standard for how they want to engage with brands and who they trust to make those interactions efficient: saving them time, money and the friction of doing business in the physical world the way they once did.
Walmart’s own evolution will be fascinating to watch. As a physical-first enterprise with digital-first dynamo aspirations, maybe it's onto something — getting an edge from physical, and using that to fend off the digital-first challengers for whom integrating physical into the digital experience seems to be an easier lift. Those dynamos have users who have already bought into the digital-first way of engaging, and have over the last year enthusiastically embraced digital life as better than the physical-world experience.
Walmart has the assets, the balance sheet and the ambition. Now, it needs to prove it can open those digital front doors before other dynamos (and matchmakers with dynamo ambitions) get there and open them first.