A Blog by Jonathan Low


Mar 17, 2019

The Reason Delivery Challenges Are Thwarting Walmart's Grocery Strategy

All these convenient online services ultimately rely on employees or contractors who - surprise! -  want to make a living wage and have a life.

The question is whether the seemingly relentless expansion of 'free' and quick delivery can continue given the economic realities on either end. JL

Sarah Nassauer reports in the Wall Street Journal:

Despite Walmart’s resources and more than 1.5 million U.S. workers, it relies on independent companies to expand  delivery services quickly, broadly and cheaply. For drivers, the economics of shuttling Walmart’s and other grocers’ orders don’t make sense. Filling online orders with store workers through aisles organized for shoppers can be expensive. And drivers need incentives to lug bulky orders from their cars to customers’ doorsteps. Walmart is considering automation as well as limiting the number of online orders, to “not disadvantage our most profitable customer, the one who drives to the store and does the work themselves.”
Walmart Inc.was caught off guard after it began offering to deliver fresh groceries from a store in North Bergen, N.J., earlier this month, only to find orders flooding in from across the Hudson River.
Drivers from DoorDash Inc. balked at paying the usual $15 toll to cross into Manhattan, store workers said; one driver was offered $11 to make the trip. Some orders were never filled.
“We never would have gone in with the intention that this would work with $11,” said a spokeswoman for Walmart, which hadn’t intended to include Manhattan within the delivery radius. “We offered additional incentive to drivers to finish the orders that came in,” then stopped offering deliveries to Manhattan after a few days, she said.
The mistake shows the hurdles Walmart and other large grocers face as they race to expand fresh-food delivery and gain an edge in one of the fastest-growing e-commerce segments.
Despite Walmart’s resources and more than 1.5 million U.S. workers, it mainly relies on a patchwork of independent companies to expand its delivery services as quickly, broadly and cheaply as possible. For drivers at those delivery firms, the economics of shuttling Walmart’s and other grocers’ orders don’t always make sense.
Walmart, the country’s biggest seller of groceries, is facing pressure to push forward in delivery because Amazon.com Inc., its chief competitor, is making inroads in grocery sales. The online retail giant bought Whole Food Market Inc. two years ago and is offering same-day grocery delivery from the chain in more cities. Amazon also plans to open a new chain of smaller physical grocery stores.
Walmart entered the grocery business with the opening of its first supercenter in 1988, setting it on a path to becoming the world’s largest retailer by revenue. Walmart generated $200 billion in U.S. grocery sales last year, more than double Kroger Co.’s take and five times as much as Amazon’s in the sector, according to investment bank Cowen & Co. Online orders were just 7% of all U.S. grocery sales last year, Cowen estimates, but are expected to double over the next five years.
Inside Walmart, executives believe maintaining a grip on grocery purchases as spending shifts online is vital to heading off Amazon, especially since it is a rare area where Walmart has a head start, former Walmart executives said.
In recent years, Walmart added a service for placing online grocery orders for parking-lot pickup at more than 2,100 of its 4,650 U.S. stores. About 35,000 U.S. Walmart employees called “pickers” now weave through aisles compiling online grocery orders. During this year’s Super Bowl the company rolled out television ads touting the pickup service in which Walmart employees load items into famous cars from TV and movies, including the Batmobile, the Scooby Doo Mystery Machine and the “Mutt Cutts” van from “Dumb and Dumber.”
Walmart is offering delivery from 800 stores, with another 800 planned this year, mostly by joining with firms like DoorDash that crowdsource drivers. Walmart pays a fee to the driving companies and charges customers $7.95 to $9.95 per grocery order to offset that cost.
But filling online orders with store workers winding through aisles organized for shoppers can be complex and expensive. And drivers for delivery firms need an incentive to lug bulky grocery orders from their cars to customers’ doorsteps, executives at delivery companies said.
“That is probably our biggest issue,” said Ben Jones, founder and chief executive of Skipcart, a crowdsourced delivery company for grocers. Skipcart started making deliveries for Walmart last year, mostly in smaller markets where larger delivery companies don’t yet operate. Mr. Jones said the San Antonio company is constantly recruiting drivers despite offering higher pay than larger rivals.
Leann Stewart, a 34-year-old receptionist in Cedar Hill, Texas, said she doesn’t usually buy groceries at Walmart. But she lives in a third-floor apartment with her husband and son so she ordered grocery delivery last week. The DoorDash delivery driver “brought it all the way up the stairs without a complaint,” Ms. Stewart said. The delivery cost was $9.95 and she tipped $5, she said. “It was a small price to pay to not have to do it myself.”
Drivers want to earn at least $10 per delivery and make multiple deliveries per hour, said Tom Fiorita, founder of Point Pickup Technologies Inc., a Greenwich, Conn., delivery company that started working with Walmart last year. “This is what you need to do to get people out of bed,” he said, adding that Point Pickup groups orders in advance to give drivers more reliable work.
Walmart isn’t hearing drivers’ concerns firsthand and isn’t directly exposed to driver issues, said Tom Ward, senior vice president of digital operations for Walmart U.S. “It’s a contract negotiation for cost,” with delivery firms handling driver recruitment and retention, he said. Some delivery partnerships haven’t worked; earlier this year Walmart stopped using Deliv Inc., which had ferried groceries from three of its stores in San Jose, Calif., since 2017. A Deliv spokeswoman said the company’s food-delivery customer base is growing.
Walmart is testing using its own store workers to make deliveries in a few locations. Late last year, it began arming workers with devices that tell them the fastest route through stores and the optimal order to place items into bags, said Mr. Ward. Walmart is also fining suppliers for incomplete deliveries, since filling online orders requires store shelves to be stocked as expected.
Executives say future remodels could tweak stores to better accommodate online ordering. Meanwhile, pickers clog some aisles, Walmart U.S. Chief Executive Greg Foran told investors at a recent conference. One complained to top executives recently: “I hate shopping in the store on Sunday, trying to get up and down the aisles.”
Walmart is considering automation as well as limiting the number of online orders some stores take, Mr. Foran said, to “not disadvantage our most profitable customer, which is the one who drives to the store and does all the work themselves.”


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