Walmart bets bigger on online grocery as it ramps up automated fulfillment at stores

A worker collects shopping carts at a Walmart store on May 19, 2020 in Chicago, Illinois. Walmart reported a 74% increase in U.S. online sales for the quarter that ended April 30, and a 10% increase in same store sales for the same period as the effects of the coronavirus helped to boost sales.Scott Olson | Getty Images

Walmart said Wednesday it plans to expand its use of high-tech systems that quickly pick and pack online grocery orders as it anticipates shoppers' demand for pickup and delivery will outlast the pandemic.

Dozens of Walmart's stores will become local fulfillment centers, with a portion of those stores turned into small, automated warehouses, the company said. To accomplish this, Walmart will either use a store's existing footprint or add to it.

In 2019, Walmart began testing one system called Alphabot at its Salem, New Hampshire store, and it immediately saw results. The system allowed the retailer to pick orders within minutes and have them ready for a customer within an hour of placing the order.

As Walmart automates more stores, it will try different configurations and work with several technology providers, including Alert Innovation, Dematic and Fabric. Some stores will have a pickup area where customers and delivery drivers can drive up, scan a code and grab their order, said Tom Ward, senior vice president of customer product at Walmart U.S.

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Walmart declined to say how many stores would receive the technology, or say how much it would spend on the upgrades. But the investment is a key part of how the nation's largest grocer hopes to fend off rivals such as Amazon, Kroger and Ahold Delhaize-owned FreshDirect that are competing for customers on same-day availability, speed and price.

For customers, Walmart's expansion of these high-tech systems could ultimately mean they can more easily snag a same-day delivery or pickup slot and have those groceries ready faster.

Automated fulfillment

Instead of relying on store employees to retrieve every can of soup or other item a customer wants, the local fulfillment centers will combine machinery and manpower. When an order comes in, automated bots will travel up and down, left and right, to retrieve items from chilled groceries to electronics and bring them to an employee at a picking station to help assemble. At the same time, personal shoppers will handpick any fragile or unwieldly items on the sales floor, such as fresh seafood, meats and produce or bulkier items like a large-screen TV or a pack of paper towels.

Walmart will expand use of a high-tech system that helps it fulfill online grocery orders. In a small warehouse in some stores, automated bots will retrieve popular items while personal shoppers grab finicky ones like produce from the sales floor.Walmart

During the pandemic, Walmart and other retailers have seen demand for online grocery delivery spike. Walmart's growth in pickup and delivery peaked at 300% and its new customers for the services quadrupled in the early days of the health crisis. To respond, Walmart boosted slot capacity by 40%.

A Walmart+ perk

But even if customers feel comfortable returning to stores, they may seek out online delivery for its convenience. Walmart has made unlimited grocery deliveries a central perk of Walmart+, its new membership program — which could drive a greater volume of orders and raise customers' expectations.

"As we move ahead, we don't see the use of these services changing in the future," Ward said. "We expect that we'll continue to serve more and more customers who have come to rely on pickup and delivery as an important part of their lives."

Online grocery orders have pressured grocers' profits in the notoriously low-margin business, too. It's forced them to pick, pack and ship orders that customers typically retrieve and transport themselves.

Ward said the local fulfillment centers are another way to use its more than 4,700 stores, which are located close to customers' homes, as a competitive asset. He declined to share specifics about potential cost savings.

It's already broken ground on compact fulfillment centers in different parts of the country, including in the Dallas area and its hometown of Bentonville, Arkansas, he said. Each not only serves its own store, but also fulfills orders picked up at other nearby stores.

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