The path to fast and affordable online grocery service is littered with obstacles: refrigeration challenges, storage woes and high transportation costs, among others. But the country’s largest retailers are convinced that it leads to a lucrative and largely untapped market.
And they are all rushing to establish dominance first.
On Wednesday, Walmart escalated the competition by announcing plans to expand its online grocery delivery service to 100 metropolitan areas by the end of the year, with orders fulfilled at more than 800 stores nationwide and shuttled to shoppers by drivers contracted through Uber, Deliv and other ride and delivery contractors. Customers must order at least $30 worth of goods and pay a delivery fee of $9.95; they can receive their purchases in as little as four hours if they order by 1 p.m.
The move puts the world’s largest retailer on a direct collision course with the world’s most powerful e-commerce player, Amazon, which purchased the Whole Foods grocery chain for $13.4 billion last summer and recently announced plans to use those stores to service on-demand orders.
And other retailers such as Costco, Target and Kroger are piling into the increasingly expensive battle for customers who want eggs and milk without leaving their couch. Only 23 percent of Americans currently buy groceries online, but 70 percent will do so in five to seven years, according to joint research from Nielsen and the Food Marketing Institute.
“There is a lot of experimenting going on as everyone tries to figure out that last-mile delivery — it’s a tough economic equation to make work,” said Mike Knemeyer, a professor of logistics at Ohio State University. “But if you can, you’ll have a big head start on the others, and you’ll end up making money not just in groceries but on all of the things that you sell.”
The company’s newest challenge to Amazon targets two industries that are increasingly appealing to retailers: e-commerce and grocery.
In October, Costco introduced a two-day delivery option for dry groceries and a same-day alternative for fresh goods through Instacart, a delivery service. Target said in December that it would purchase the online same-day delivery service Shipt for $550 million in cash.
Earlier this month, Amazon said it would offer same-day delivery of groceries from Whole Foods in six cities. On Monday, Kroger followed suit with an announcement that it would expand the number of cities eligible for home delivery of groceries through Instacart.
Walmart’s Sam’s Club division, which said last month that it would offer members free shipping of online orders for an annual $100 fee, also uses Instacart. But Walmart said it would not tap the service for its namesake stores’ grocery delivery program.
The company has made several substantial investments into its growing suite of online offerings, including a partnership with Google to sell Walmart products on Google Express, and a $3.3 billion acquisition of Jet.com, a bulk online retailer.
But success has sometimes been fickle — Walmart’s online sales increased 23 percent in its most recent quarter, less than half the rate of growth in each of the prior three quarters.
On Wednesday, Walmart also reiterated that it will expand its curbside grocery pickup service, which allows customers to order food online and collect it at stores, to another 1,000 locations this year from the 1,200 locations where it is already offered.
“We’re saving customers time by leveraging new technology, and connecting all the parts of our business into a single seamless shopping experience: great stores, easy pickup, fast delivery, and apps and websites that are simple to use,” Greg Foran, chief executive of Walmart U.S., said in a statement.
Door-to-door delivery, however, requires a level of logistical planning that has stumped many retailers.
Walmart’s service requires customers to visit the company’s website or grocery app to place orders. The chain will then send one of its 18,000 personal shoppers to collect the selected items.
Each of those employees — along with the thousands more that Walmart said it would add this year — undergoes a three-week training program that teaches them to pick out the best produce and meats.
After the order is prepared in the store, a delivery service such as Uber would whisk it away to the customer.
Offering expanded online grocery delivery is an “informed gamble” for Walmart, Knemeyer said, one that will likely serve up side benefits such as data collection and inroads into the affluent urban consumer base.
But Walmart’s upfront $9.95 fee on each order is a much more visible cost to consumers compared to Amazon’s annual $99 fee for its Prime membership, which some shoppers set to auto-pay and then forget.
“They probably just look at the relatively high delivery fee and get scared off,” said Matthias Winkenbach, director of the Massachusetts Institute of Technology’s Megacity Logistics Lab. “Walmart would have to do a very good job communicating the overall economics of shopping their everyday low prices versus Amazon.”