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Special Delivery From Wal-Mart's Silicon Valley Lab

Wednesday, 14 Nov 2012 | 4:40 PM ET
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Wal-Mart has a special ready-to-eat delivery of "Goodies" heading your way.

The world's largest retailer is partnering with Goodies Co., a monthly food subscription service, to offer a taste-testing program. For $7 per month, U.S. consumers receive a package with five to eight new products that fit a theme. Bought separately the food items would cost around $15. To buy into the program, consumers need to sign up for an invitation to join at www.goodies.co.

The sample box sent to CNBC included eight items that fit the theme "Entertaining Made Simple." From Flourless Bliss Pumpkin Souffle Mix to Bobbysue's Nuts, the sampling seemed a bit more unique than what you might expect to find at your local Walmart store.

While the items have been selected from all over the country, the program was created in Silicon Valley, not in Bentonville, Ark. where the world's largest retailer is headquartered. Located in San Bruno, Calif., @WalmartLabs is dedicated to growing and enhancing Wal-Mart's e-commerce business, and helping it compete against Amazon .

"At Walmart Labs our charter is to innovate at the intersection of social, mobile and retail" said Ravi Raj, @WalmartLabs vice president.

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Wal-Mart may be the largest brick and mortar retailer in the world, but Amazon dominates ecommerce. Wal-Mart's 2013 e-commerce sales goal is $9 billion, a fraction of Amazon's nearly $50 billion in sales. @WalmartLabs started in April 2011 with around 50 employees and is now up to nearly 400. Since its inception, the tech group has created a search engine, "Polaris," for Walmart.com, "Shopycat," a social gift finder called crowdsourcing contests, and Social Media Analytics, which uses social media discussions to select items for Wal-Mart to carry.

Goodies however, is more of a business focused initiative than a technology initiative. Raj said Wal-Mart looked at the Box space and competitors offerings felt it was "...ripe for innovation. We picked food because it plays to Wal-Mart's strengths. Wal-Mart is the largest grocer in the world, so we thought we could leverage the relationships we have with suppliers in the food space".

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Wal-Mart's size is a competitive advantage over rivals, it provides for economies of scale that enables the retailer to charge consumers lower prices. Consumers' reaction to the items in the monthly Goodie box can ultimately help Wal-Mart decide whether or not it will stock those items going forward.

Goodies is just a small step in the large strategy as Wal-Mart works to become more competitive online.

"The real advantage Amazon has is the best website, and an investment community that is willing to keep investing in Amazon at ridiculously high multiples for a company that cannot bring much in the way of profitability to the bottom line" said Jan Kniffen, of J Rogers Kniffen.

Amazon's forward price to earnings ratio is a whopping 127 compared to Walmart's 13, Target's12.5 and Costco's19 .

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But Kniffen, the former senior vice president of Finance and Treasurer of The May Department Stores Company, thinks it won't be long until Wal-Mart will closes in on Amazon's dominance.

"Given the growth of online sales at Wal-Mart, Macy, Saks, and countless unnamed other retailers, I still think Amazon's growth rate will slow, not accelerate. Yes, they are, and will continue to be one of the world's great retailers. But, really, they are just a retailer. One day they will trade like one."


-By Courtney Reagan, CNBC Reporter

Questions? Comments? Email us at consumernation@cnbc.com. Follow Courtney Reagan on Twitter@CourtReagan.

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