2019 Retailer of the Year: Walmart Is Reshaping Grocery From the Ground Up

What’s the one thing consumers can’t buy?

Time.

“Or is it?” Doug McMillon, president and CEO of Walmart Inc., wondered in his message to stockholders this past June.

Certainly, most of the innovations that retailers have been furiously pursuing can be said to have been designed to save time, enhance convenience or otherwise make it easier for consumers to acquire their basic daily needs.

Among retailers that sell groceries, Walmart has been head and shoulders above the pack in the reinvention of routine buying and selling. It’s one of the reasons that Progressive Grocer selected the Bentonville, Ark.-based mega-merchant as its 2019 Retailer of the Year.

And it’s not just about the consumer’s time — it’s about the associate’s time, and finding ways to make their job easier so they can focus more attention on the shopper.

“We’re learning how to work in an agile way,” McMillon said in his June stockholders address, “with customer experiences designed thoughtfully from the start, and with technology doing more of the work so our associates can focus on customers and members.”

One of Walmart’s latest efforts: solving the last mile, or rather, the last few feet of the last mile. The retailer is piloting in-home grocery delivery to nearly 1 million customers in three markets: Kansas City, Pittsburgh, and Vero Beach, Fla. All deliveries are done by associates with at least a year of service. Customers are notified upon arrival and can watch a live first-person view of their delivery, or a recording of it later.

Entering someone’s home when they’re not there — it’s the new frontier of the creep factor.

“We're trying to understand customers’ appetite and whether or not that’s a process they enjoy,” Tom Ward, SVP of digital operations, tells PG during a visit to Walmart’s home office. “We definitely know customers want the convenience, the fact that they can come back and all these groceries are already inside the house. .... They can see the whole process happening. They can see the items get put away into the fridge and the cupboard, and they can see the associate leave again. For the small test that we’ve got right now, people really love this service. It’s something we’re going to continue to experiment with.”

Where Customers Want to Go

Walmart’s experiments in grocery appear to be paying off.

For the second quarter of its 2020 fiscal year, the retailer posted a U.S. ecommerce sales increase of 37%, including strong growth in online grocery, along with a 7.3% rise in U.S. comparable sales on a two-year stacked basis — the mega-retailer’s strongest growth in more than a decade, as reported in August. The segment’s operating income climbed 4%, marking its fifth straight quarter of growth.

Total revenue for the company came to $130.4 billion, a $2.3 billion increase, or 1.8%. Walmart operates more than 11,300 stores under 58 banners in 27 countries, as well as ecommerce websites, employing more than 2.2 million associates worldwide. The company is No. 1 onPG’s 2019 Super 50 list of the top grocers in the United States, with sales topping $514.4 billion.

“The No. 1 thing that’s driving it is where customers want to go,” Ward says. “People still come through the doors of the Supercenters and the Neighborhood Markets, and physical traffic’s increasing. But increasingly, people want to shop online and they want the convenience of being able to do that. What that means is different to different people. That’s where you’re seeing us evolve the different propositions, like our huge pickup footprint now, deliveries rolling out really aggressively, all the way through to the super-innovative things like the in-home discussions. Wherever it is that customers want to go, we want them to be able to interact with Walmart.”

And at the heart of it all is grocery.

“Grocery’s obviously super-important to customers, and therefore it’s super-important to Walmart,” Ward asserts. “I think people increasingly look to us to save them money, and more often now save them time as well. One of the biggest time crunches in any busy family’s week is grocery shopping. The easier we can make that, both in-store and online, for customers, the better. That’s where most of the focus on our innovation is being driven from online grocery, for sure.”

The Momentum Continues

Walmart may be the best positioned of any traditional retailer to not only match but also beat Amazon as the e-tailer continues to burrow its way into the grocery space with its ever-evolving hybrid of online delivery services and experimental brick-and-mortar stores.

“Between a positive economic climate and major merchandising and operational improvements, Walmart is enjoying sales momentum like it hasn’t seen in a long time, and it looks like the momentum will continue,” notes Mike Troy, editor of PG sister publication Retail Leader, referring to comments made by Steve Bratspies, Walmart U.S.’ chief merchandising officer, during the recent Goldman Sachs Global Retail Conference. 

“The most notable comment [Bratspies made] was that stores offering grocery pickup service are still producing positive same-store sales after three years. That’s a big deal, because Walmart will have pickup service at 3,100 locations by year end, and since about two-thirds of those came online in the past two years, they are expected to provide a strong tailwind to comps,” Troy points out.

Regarding the pickup service, Bratspies said: “It’s proving to be highly incremental to our business and bringing in new customers with strong repeat. The average basket size is about two times what a standard grocery basket is, so obviously we’re excited about that.”

The baskets could get even bigger as the service evolves to delivery from grocery pickup and shoppers gain the ability to choose from a rapidly expanding assortment of general merchandise. “Walmart, like most retailers, has to serve shoppers how they choose to engage. That’s why it’s building an omnichannel ecosystem of fulfillment methods,” Troy says, pointing to the company’s delivery pilots. “If it works, the service could be expanded as rapidly as Walmart added grocery pickup.”

Walmart has impressed market analysts as well. 

“Walmart’s efforts haven’t just halted Amazon’s impact on its biggest business — they’ve attracted new customers to the retailer that spend more per trip than in-store grocery shoppers,” stock advisor Adam Levy wrote for The Motley Fool this past June. “Amazon has made several moves to integrate Prime and Whole Foods to offer more online grocery options for its customers.”

Amazon Prime members can pick up online orders from Whole Foods in 30 markets; Amazon also offers those customers free delivery, while Walmart charges $9.95 per delivery. But as Levy noted: “Walmart, however, has been able to leverage its vast footprint of brick-and-mortar stores to enable customers to make pickup orders at about 2,450 stores, and order delivery from over 1,000 stores. By the end of the year, Walmart will offer grocery pickup for about 80% of the U.S. population, and it’ll deliver to about 50% of households. That makes Walmart a more attractive option for most consumers in the country.”

Upping the Experience

Ward says that new, “really unique pieces of technology” will help further streamline the click-and-collect experience, among them check-in capability.

“When you’re on your way to get your grocery pickup, we allow our customers to check in and say, ‘Hey, we’re on our way.’ That sends a notification to the store and allows the store to pull the orders together, get the fresh and frozen items out right at the last minute so we maintain really high quality,” he notes. “Each of our spaces is numbered out in the parking lot. When customers pull in and they’re checked in, they can say, ‘Hey, I'm in spot No. 6.’ The associate can bring their order straight out to that car and they can get on their way in a couple of minutes. We’re seeing that prove really popular.”

Maintaining quality within the cold chain is something that the Walmart team continues to refine. In fact, Ward believes that delivery offers shoppers a step up in food integrity. “When you’re a customer walking in and you hit the ice cream aisle and you hit the fresh meat aisle, you put those things in your cart, and then you go around, you do the rest of your shopping, and then you go through the checkouts and you load your car and you drive home. Those items that have been kept in the cart for however long, you take, 20, 30, 40 minutes,” he says. “With delivery, we keep all of our fresh and frozen orders in the fridge and freezer right until the last minute. So all the great technology that teams have built for pickup applies to our delivery business as well.

“They then stage that order in the back of house. It’s not until the driver arrives that we realize it’s a delivery or a pickup. There’s a few guidelines that our associates follow when it’s a delivery driver, but for the most part, that’s what's enabled us to scale so quickly in terms of the delivery space. It might actually get to about 50% national coverage this year, from a standing start only about 12 or 18 months ago.”

The next step – autonomous delivery vehicles – is in the pilot stage and is expected to further drive cost out of the process.

“We’re really excited about this space. We’ve been looking into it for a long time,” Ward says. “There’s two primary things that are exciting in this space: There’s helping take cost out of the delivery model by using an autonomous vehicle. It could take a grocery order from the store all the way to the customer’s house. That helps us reinvest back into prices and reinforce that key factor for our customers, saving money, plus time with the convenience and the delivery.”

Testing is under way in Arizona – a partnership with Burlingame, Calif.-based technology company Udelv and its second-generation autonomous delivery van, the Newton – where the technology is already making waves. “This thing turns up and customers are excited to go out there and retrieve their order,” Ward says. “It has a compartmentalization system, so the vehicle can actually hold multiple orders and just reveal the customer’s order that it arrives at. We’re excited to see what we can do with these.”

Another test, in the area around Walmart’s headquarters, with Palo Alto, Calif.-based autonomous-vehicle company Gatik, was announced in June. “That’s a slightly different use case. That’s where we take volume that we pick for our online customers from one facility, and we actually move it to a different facility so the customers can get all the convenience of pickup, even if the store itself doesn’t pick the orders,” Ward explains.

“Autonomous vehicles play a big role in that, because we operate that hub-and-spoke system really successfully in a number of markets, including Bentonville, but we use a gas-powered, person-driven truck right now. We’ll pick the orders in one place, we’ll put them into the truck, and we’ll transport them to the spoke. What Gatik is helping us do is make that spoke journey with an autonomous vehicle. It’s really exciting to see where that was going to go next. We think we can take a lot of cost out and pass that back on to the network.”

Next on the list is voice ordering, which Ward expects “to be really big, and that’s why we went in hard with the partnerships we announced earlier this year.” 

That extends beyond shopper-focused initiatives. For store associates, the retailer is introducing new apps, new hardware, and new forms of automation like pickup towers and floor cleaners, with cameras checking inventory. “Our goal is to design tools for associates just as well as we design experiences for customers,” McMillon said, “and we want our associates to grow and be ready to use them.”

PG got a peek at a few of these innovations at the Rogers flagship store, where a robot plied the aisles scanning for out-of-stocks, shoppers accessed orders via touchscreen from a pickup tower, and a new online order rack system stood poised to come online, to expedite click-and-collect orders.

Walmart’s also investing in its associates, rolling out an incremental $4.5 billion in pay for store and club associates in the United States, boosting its starting wage rate by 50 percent, and increasing the number of full-time roles to 60% full-time in the United States, ahead of the industry average, McMillon noted.

Further, the retailer expanded its parental leave policy to 16 weeks and created a benefit of $5,000 per child to help families that are growing through adoption. Also this year, the company expanded Live Better U, its debt-free, dollar-a-day college program, by adding technology degrees and more schools, and support for high school students entering the workforce. “As technology changes jobs, and the tasks that make up a job, we want our associates to learn and succeed,” McMillon said.

On the sustainability front, Walmart is two years into Project Gigaton, which aims to avoid 1 billion metric tons of emissions from its supply chain. To date, the company has signed on more than 1,000 of its supplier partners to the program. “In the first two years, they tell us more than 93 million metric tons of emissions have been avoided,” McMillon said.

Additionally, Walmart reports that it’s now powered by 28% renewable energy, diverts 78% of its waste from landfills, has hired more than 225,000 U.S. veterans since 2013, is a top 50 Diversity Inc company, donated $1.4 billion in cash and in-kind gifts last year, and has provided 4 billion meals to those in need since 2014. 

What makes Walmart such a great place to work for those aiming to change the course of grocery retail?

The scale and the opportunity, Ward says: “We have an excellent mission at Walmart, and it’s the easiest mission to remember: Just save money, live better. I think increasingly, saving people time goes hand in hand with living better. If you have that as your north star, and with the resource and the footprint that Walmart has, and once we built some momentum and trust within the business, there’s not many things that people tell me I can’t do as long as we get a great result out of it. That really motivates the team.

“There’s not many places that you can get the kind of opportunity you can get here at Walmart to change as many lives. Realistically, we’ve done everything we’ve set out to do, but we continue to stretch the limitations of what’s possible for our customers. It motivates the team all the way through, from the ground up.”