How Walmart figured out online grocery delivery in China

Wal-Mart has already developed a big online grocery delivery business in China, capable of transporting fresh produce from its shelves to homes within an hour. To accomplish that feat, it’s created a network of chilled mini-warehouses, used artificial intelligence to tailor inventories, and employed an army of crowdsourced deliverymen to rush meat, fruits, and vegetables to customers’ doorsteps. That could provide the megaretailer with plenty of insight and experience to keep tech upstarts from disrupting it out of one of its core U.S. businesses.

Fresh food is considered the last frontier of Chinese e-commerce. Internet sales account for only a tiny fraction of China’s 4.6 trillion-yuan ($695 billion) annual market for fresh foods. Wal-Mart’s efforts in China, where it has more than 400 stores, revolve around trying to tap into a convenience-craving, smartphone-obsessed population that views errands such as going to the supermarket or bank as unwanted burdens. Catering to such customers helped Alibaba Group Holding Ltd. and Tencent Holdings Ltd.grow into two of the biggest internet companies in Asia.

Yet in a country where everything from forks to forklifts are bought online and same-day merchandise delivery is commonplace, purchasers of pork, bok choy, and fresh jujube fruit remain stubbornly loyal to bricks and mortar. Only 2 percent of fresh food was bought online in China last year, according to data from Euromonitor International.

“There’s no doubt that it’s convenient in specific situations, but I usually don’t know what I need to buy,” says Jing Wang, a 24-year-old media editor in Beijing. “So I still like to go to the supermarket and look around to decide what kind of things I need.”

Wal-Mart believes it’s cracked the code with its partner, JD.com Inc., China’s second-largest e-commerce platform, with 260 million monthly users. Wal-Mart owns 10 percent of JD.com and has invested $50 million in its Dada app, which crowdsources deliverymen for all kinds of products on JD’s website. Grocery shoppers make orders for Wal-Mart’s one-hour delivery through a section of JD’s app called JD Daojia, and the drivers are assigned through Dada.

At the heart of Wal-Mart’s operation are what it calls “dark stores,” or convenience-store-size areas in its main locations that stock 1,500 different products such as bananas, pork ribs, frozen dumplings, and fresh chicken feet. Workers grab printouts of the online orders, zip through the aisles placing items in a bag, and exit the other side, where they hit a button summoning a delivery driver. The drivers are independent contractors, such as Uber drivers, with cellphones and scooters. The time from picking up the order printout to hitting that button can’t exceed 10 minutes, or else the one-hour delivery is in peril.

Shelves are stocked with products based on order patterns for the surrounding area—meaning a store in northern China may have more soup ingredients as winter comes. The company adjusts each store’s online inventory every four weeks, and the added information about fresh grocery demand from web orders helps boost the accuracy of Wal-Mart’s product forecasting for offline stores.

By yearend, one-hour delivery to customers within a 3-kilometer (1.9-mile) radius will be available from 161 Wal-Mart supermarkets, and the company wants to expand the service. It’s also introducing free-standing dark stores that may be located farther than 3km from a Wal-Mart supermarket. That will widen the circle of customers who can get their groceries within an hour.

Wal-Mart’s efforts are bearing fruit. Third-quarter net sales in China increased 4 percent from a year earlier as one-hour delivery expanded to 140 stores, Chief Executive Officer Doug McMillon said during a Nov. 16 call with analysts. The company boosted its earnings forecast for the full year, and its share price subsequently reached an all-time high.

Source Bloomberg