Walmart and Amazon are battling over a small piece of their industry that’ll likely explode in the next few years

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  • Walmart and Amazon are going head-to-head in the online grocery delivery space, but it’s an area where the investment potential has not been fully unlocked.
  • A Jefferies analyst says that will soon change as home delivery becomes the least retailers can do to remain competitive.
  • You can see how Walmart’s stock is doing here; and how Amazon’s stock is doing here.

Online grocery sales account for only 1% of the total US grocery market, according to IGD, a grocery research firm. So you might be asking yourself why Walmart and Amazon are rushing into such a small market.

Because one day, retailers won’t stand a chance in the competitive grocery landscape if they don’t offer it, according to Daniel Binder, a Jefferies analyst. The category will likely balloon in the next three to four years to anywhere from $20 billion to $100 billion, by some estimates.

“Although delivery is still a small piece of the total industry, we suspect it will become table stakes before long,” Binder said in a note.

Walmart’s “click and collect” offering, which allows customers to order items online and pick it up at their physical stores, has led to more people buying things online than at the store, Binder says. He believes that consumers will likely follow the same habits with home delivery as well, given the fact that people will likely want to “get the most out of the $9.95 delivery fee.”

Walmart has launched its service in 100 metro markets, covering 40% of US households. “This is pretty impressive coverage of the population,” Binder said.

“We think there is a pretty good chance this will expand share of wallet for Walmart with customers using this service and the higher gross profit dollars combined with the fee should go a long way in covering the picking and delivery costs associated with the service,” Binder said.

Amazon has also been testing out its own two-hour grocery delivery offering in several select cities, though it does not have the sheer scope of Walmart’s rollout at the moment.

Read more about how Walmart plans to reach its US online growth targets.