Morgan Stanley analysts listed 5 key reasons why Walmart’s new membership program can stand out and compete successfully with Amazon Prime (WMT, AMZN)

  • Morgan Stanley says investors skeptical about Walmart’s new membership service, Walmart+, are asking how exactly it’s different from others, like Amazon Prime.
  • Walmart can offer lower grocery prices, discounts on gas, and new healthcare benefits, among others, Morgan Stanley wrote in a note published Monday.
  • Walmart+ is a new membership program that offers same-day delivery and special discounts for an annual fee of $98, and is expected to launch this month, according to Recode.
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One question keeps popping up when Morgan Stanley talks to investors about Walmart’s new membership program that’s expected to launch this month: How is it different?

In a note published on Monday, Morgan Stanley analysts wrote that investors are “skeptical but open minded” about Walmart+, the retailer’s new membership program that is expected to include perks like same-day delivery and special discounts for an annual fee of $98. The biggest concern, the note said, is how exactly Walmart is going to differentiate itself from its competitors, including Amazon Prime and Costco’s popular membership program.

“This is the #1 question/pushback,” the note said. “If I’m a Prime member, why would I be interested in Walmart+?”

It’s a particularly important question to address for Walmart+ to succeed in a crowded market. Morgan Stanley has previously made the bull case of Walmart+ adding 27 million new members in the next six months, resulting in a new business that is worth roughly $30 million for the retailer. If successful, Walmart+ could get each customer to spend an average of $6,300 per year on its service, it said.

In the note, Morgan Stanley gave five factors that could help Walmart+ stand out from the rest of the pack: 

  • Price, particularly in grocery: Walmart has the largest scale and offers the lowest price in grocery, Morgan Stanley says. Other grocery discounters, like Aldi and Lidl, don’t have the same breadth and depth as Walmart, it says. Even compared to Amazon, Walmart appears to offer 10% to 15% lower prices, Morgan Stanley data shows. 
  • Fuel: Walmart+ is likely to include discounts on fuel at Walmart gas stations, according to Recode, which first broke news of the plans. Walmart currently has more than 1,200 fuel centers across the country, so adding a fuel discount or reward system to Walmart+ can enhance the value of its membership, Morgan Stanley says.
  • Dual membership/convenience: Morgan Stanley’s research shows that people earning over $100,000 per year are “most likely” to sign up for Walmart+. These higher-income users are likely to pay for Walmart+, even if they are Amazon Prime members, if they feel like they’re deriving some value from the new service, such as cheaper groceries.
  • Selection/delivery times: For now, Walmart’s biggest weakness compared to Amazon is its selection and delivery times, Morgan Stanley notes. But that gap can narrow going forward, as Walmart adds more sellers to its third-party marketplace and offers quicker delivery times. For example, Walmart has nearly tripled the number of sellers it’s adding per month since January, according to Marketplace Pulse.
  • Healthcare: While still early, Morgan Stanley believes Walmart’s recent foray into healthcare can be a competitive advantage in the future. Walmart has launched a health insurance service this year, while opening health clinics in some of its stores. Morgan Stanley expects Walmart to incorporate pharma discounts and physical exams, among others, into its future health offerings.

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