Can Walmart Reinvent how America Buys Groceries?
(CBS NEWS) If Walmart (WMT) has its way, it might just clean up in the grocery aisle.
The massive retailer, which is recreating itself under CEO Doug McMillon, has struggled in recent years with everything from customer complaints about poor service to pressure from labor activists to raise wages. But Walmart’s new curbside grocery pickup is earning praise from some customers, who, ironically, don’t have to step inside one of its stores to use the service.
The retailer, which started testing the service last year, said it will offer it in 600 locations by the end of October. The idea is simple: Order groceries through Walmart’s grocery app or on its website, and then drive to your local Walmart, where employees deliver the groceries to your car.
Unlike some rival grocery chains, Walmart isn’t charging extra for the service. So far, some customers are expressing enthusiasm about the idea on social media, and Walmart says it’s gaining new shoppers through word-of-mouth recommendations.
“Walmart grocery pickup without ever going inside is maybe the greatest invention EVER!!!!” one woman wrote on Facebook.
The company plans to add another 500 stores to the pickup program, according to a Walmart spokesman. So far, it’s offered in a range of small and large cities, ranging from Ogden, Utah, to Atlanta.
Walmart may soon face increased competition, however. Amazon (AMZN) is reportedly developing small brick-and-mortar grocery stores that would also allow consumers to order online and use curbside pickup, according to The Wall Street Journal. (The Seattle-based e-commerce giant declined to confirm the report, stating, “We don’t comment on rumors or speculation.”)
Walmart’s service is geared toward millennial parents with small children. After all, Walmart Chief Operating Officer Michael Bender has written on the company’s blog that finding time to shop is often a problem for its customers.
“This new, easy shopping experience is an innovation that’s helpful for anyone with a busy schedule -- particularly moms with small children,” he wrote. “They can shop online and choose the pickup time that works for them, and they never have to unbuckle anyone’s seat belt.”
Of course, grocery pickup may also appeal to other demographics who have difficulty getting inside stores, such as people with disabilities or seniors with limited mobility.
Despite its early positive reception, the real test for Walmart may be whether it can turn a profit on the service, which may be difficult given the grocery industry’s thin margins. Plus, the additional labor that might be needed for packing and bringing bags to curbside cars could only heighten Walmart’s challenge.
The company is adding staff to work as personal shoppers, although it’s not disclosing how that might affect margins or labor costs. “These are dedicated personal shoppers,” said Ravi Jariwala, senior director of Walmart’s media relations. “They aren’t other associates from other part of the store. That’s important, because they execute the service from end-to-end.”
Some consumers are hesitant to order groceries online because of concern that the produce wouldn’t be as fresh as they would have picked themselves, for example. But Walmart’s personal shoppers are trained on how to judge produce and meat for quality, a company executive told The Washington Post.
Unlike Amazon’s grocery delivery service, Walmart has a built-in advantage: Its 3,500 supercenters are located all across the U.S. About 70 percent of Americans live within 5 miles of a Walmart, which means its locations are “already in place” to create the curbside delivery service, COO Bender wrote.
Rival services charge additional fees for the delivery, in some cases because they don’t have existing infrastructure and need to pay for new warehouses and staff. Amazon’s Fresh delivery service, for instance, charges $14.99 per month to deliver groceries and restaurant dishes.
Still, Walmart faces a number of hurdles. For one, consumers aren’t all that crazy about its groceries. The retailer scored dead last among the country’s top supermarkets and among health and personal care stores in a survey published earlier this year by the American Customer Satisfaction Index.
Second, rival grocers are offering similar programs. Wegmans, the cult supermarket that earned the ACSI top ranking this year, has a personal shopping app for customers who want curbside pickup, although it does cost $5.95 per order. Kroger (KR) and Giant are among other chains that offer similar services.
And lastly, online grocery shopping isn’t exactly catching on like sliced bread. Ordering groceries online increased only half a percentage point this year, reaching just 4.5 percent of consumers in 2016, according to an analysis from TABS Analytics. Walmart was flat in both 2015 and 2016, while Amazon gained online grocery customers this year, the study found.
“This is not a sustainable business model,” said TABS Analytics CEO Kurt Jetta in a statement about the study. “Food companies and grocers need to figure out why there is such a high level of dissatisfaction with the online channel before they continue to invest any further in it.”