To compete with Amazon Flex, Walmart tests grocery delivery service

“Customers love grocery delivery — we’re looking at a number of different ways to best expand that service,” Walmart spokeswoman Molly Blakeman said. “Some of the options are in-house, and others are third-party; Spark is Walmart’s own commerce platform, and it helps us learn about the last-mile delivery process so we can best serve our customers.”

Spark isn’t Walmart’s first attempt to use third-party driver services; two years ago, it experimented with using Lyft and Uber, but both of these tie-ups didn’t last long — Walmart’s tie-up with Uber ended earlier this year with the shutdown of grocery-delivery service UberRUSH, and its agreement with Lyft wound down in 2016. Working with companies that weren’t experienced in delivery didn’t have staying power, reportedly due to the logistical challenges of concurrently running business models of transporting cargo and people. Blakeman said using third-party delivery services was integral to Walmart’s business strategy, and the retailer’s 5,000 physical locations position it well to compete in a crowded market. Walmart, like other big-box retailers Kroger and Target, is investing in delivery to appeal to consumers likely to outsource groceries to e-commerce platforms like Amazon.

While Spark powers the delivery experience on the back end where the trial is currently underway, customers won’t notice a difference; they’ll still shop for groceries on Walmart’s website and app, which will feature inventory of the nearest store.

Through its experiments working with third parties and using its own employees to fulfill delivery operations, the retailer is learning which type of model will work best as it scales the offering to new markets. Walmart is fast encircling the continental U.S. with direct-to-home grocery delivery and has an ambitious plan to expand delivery to 100 cities covering 40 percent of U.S. households by the end of the year. It’s also using physical locations as grocery pickup points for online buyers, and testing the use of self-driving cars to transport shoppers to store pickup locations. Meanwhile, Walmart-owned Jet.com recently opened a fulfillment center which will offer same-day grocery delivery for New York City customers.

“There isn’t one silver bullet on how to provide delivery to customers; there are a number of different options — our customers love online groceries, and we continue to look to solutions to provide the best experience,” Blakeman said.

Grocery delivered through e-commerce is seen as a big opportunity for the retailer, whose grocery division last quarter reported the best results in nine years. E-commerce is expected to be a big growth driver for the grocery sector; according to eMarketer, grocery app usage is expected to grow to 30 percent of adult smartphone users by 2022, up from an estimated 18 percent currently.

While Walmart sees its physical locations as assets against competitors, last-mile delivery is still a tough problem to solve for retailers who have to contend with workforce and technology requirements to meet demand.

“Last-mile delivery is a massive operational challenge, especially in a time-constrained environment for a thin-margin business,” said Andrew Lipsman, retail and e-commerce analyst at eMarketer. “Proper execution of last mile depends on having a very liquid market of drivers with a geographical radius who can be tapped into at a moment’s notice.”

An in-house platform gives Walmart greater control over the customer experience and minimizes technical hiccups, he added. Partner company Delivery Drivers, Inc. manages recruiting, screening, and payment for the independent drivers. Jim Fosina, CEO of Fosina Marketing Group, an agency that helps brands develop direct-to-consumer strategies, said that while working with any third-party outfit introduces an element of risk, partners make sense in areas where it would be impractical to set up an in-house team to do deliveries. He argues Walmart will likely maintain the flexibility to adapt its delivery model to market conditions.

“One size doesn’t fit all — it’s a real number-crunching exercise,” said Fosina. “Third-party delivery is available in some geographies, and it’s not available in others; the cost of labor may mean it’s permissible to do in-house versus a third party [in some areas], and in the end, there will probably be some blend of the two.”