Walmart has launched its Walmart To Go grocery home delivery service in a bid to gain a share of rising online spend and to counteract falling domestic sales. Although high levels of car ownership and the vast size of the US make it difficult to offer such a service nationally, the rise of online retailing along with a maturing market make the trial an imperative move for Walmart.
The world's largest retailer, Walmart, launched its first online grocery delivery service in San Jose, California, on April 23. The grocer already sells non-food items and dry grocery from its online platform, allowing customers to pick up the items instore. However, the Walmart To Go service will include fresh produce and will deliver goods to customers' homes for a fee starting at $5.
The move comes as a response to negative domestic like-for-like sales at Walmart stores along with rising competition from online pureplay retailers, such as AmazonFresh and FreshDirect, and other bricks-and-mortar grocery players including Safeway and Peapod. As such, Walmart has been prompted to expand in the online sales channel to maintain its growth momentum. Despite the competition, Walmart already has some experience of online retailing through its operations in the UK, where grocery retailers have shown great innovation in the online sphere.
Introducing the home delivery of groceries can be a cost-effective method for a retailer to extend its product reach to new customers, such as those who make small purchases and have little need to visit a full-size hypermarket. However, such services have proven troublesome for US grocers in the past. The online grocery retailing market is in its infancy in the country and demand for such services remains low, which Supervalu cited as the reason behind it terminating its delivery service in 2009.
Moreover, car ownership in the US is extremely high, with around two cars registered for every three people compared to one car for every two people in the UK, limiting the benefits of a delivery service. Retailers also need to consider the logistical hurdles that come with such an offer. The US is a very large country, meaning that retailers will firstly have to focus on a limited area. Such factors combined mean that a home delivery service may prove to be a costly venture and may hamper sales, rather than drive them.
As such, Walmart's move into online home delivery is a risky venture and the retailer is wise to limit it to select urban areas to assess initial demand. Extending its click-and-collect service will help it tie up its online operations in a more cost-effective manner. Nevertheless, as the US market matures and shopping increasingly moves to the Internet, online is one channel that Walmart cannot afford to ignore.