Walmart is getting in on the sharing economy

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Image: Reuters/Rick Wilking
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Walmart is turning to the sharing economy for help with online grocery delivery.

The world’s largest retailer said Friday (June 3) that it plans to begin testing last-mile grocery delivery through Uber in Phoenix and Lyft in Denver in the coming weeks. Since March, Walmart has also been trialling delivery for groceries and other merchandise in Miami from Sam’s Club, its wholesale brand, via same-day delivery startup Deliv.

Walmart already has a grocery shopping service that allows customers to place orders online and then pick them up at local stores. The test partnerships with Uber and Lyft will take advantage of that existing infrastructure. Walmart workers will handle the groceries, picking and packing items to fulfill orders. After that, Walmart will request a driver through Uber’s or Lyft’s app to complete the delivery.

Customers will be charged Walmart’s typical delivery fee of $7 to $10 for the grocery service, the company said. Lyft declined to comment on how Walmart will pay it for making the deliveries, and Uber and Walmart didn’t respond to questions.

The on-demand grocery business isn’t an easy one. Walmart, Google, Amazon, as well as richly backed Silicon Valley startup Instacart are among those vying to bring the goods to customers’ homes. But margins on groceries are notoriously thin, with stores usually keeping only $1 to $3 of every $100 shoppers spend. That means companies doing the deliveries need both high frequency and high volume to make the financials work.

It’s an open question whether they can. Craig Jelinek, CEO of Costco, has expressed doubt that anyone could do same-day grocery delivery profitably. Webvan, an online grocer during the dot-com craze of the early 2000s, is remembered as one of that era’s most spectacular failures. In recent months, Instacart has raised prices, laid off workers at headquarters, and implemented harsh new standards for its in-store shoppers.

Even so, companies seem to believe that mastering grocery delivery will ultimately be worth the challenge. In part, this is because groceries are something everyone needs. Walmart has focused intensely on improving its grocery offerings as it goes head to head with the likes of Amazon. Walmart’s massive scale—it has thousands of locations in the US—could also help it avoid the low frequency and volume problems that have bedeviled other companies.

In the equally competitive ride-hailing space, meanwhile, startups see logistics as a way to diversify their businesses as rides become increasingly commoditized. While this is Lyft’s first public foray into logistics, Uber has been on that road for the better part of two years. Uber CEO Travis Kalanick made clear these ambitions in December 2014, when he told Vanity Fair, “if we can get you a car in five minutes, we can get you anything in five minutes.” Uber has since built out UberRush (a messenger service) and UberEats (restaurant delivery), both of which fall under the formidable-sounding “UberEverything” division.