Can Walmart Build a Successful Third-Party Last-Mile Delivery Offering? - 7investing 7investing
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Can Walmart Build a Successful Third-Party Last-Mile Delivery Offering?

The retail giant plans to try with GoLocal.

August 30, 2021

Amazon (NASDAQ: AMZN) handles much of its own last-mile delivery but it has paused efforts to offer those services to other companies. Target (NYSE: TGT) offers third-party last-mile delivery from a number of major retailers through its Shipt service and a number of players including Instacart, Uber Eats (NYSE: UBER), and DoorDash (NYSE: DASH) have attempted to become players in getting items the final “mile” to consumers homes.

It’s a crowded market but one that’s growing as more people expect quick, one-day, or even same-day delivery across a wide variety of retail categories. Walmart (NYSE: WMT) has become the latest retail giant take on the last-mile challenge and, unlike Amazon, it’s not building out this capacity just to deliver its own products. The retail giant plans to launch GoLocal, a last-mile delivery service that will deliver for Walmart and select partners that will not carry the Walmart brand

The move makes sense for the company but “7investing Now” host Dan Kline thinks that the service may end up looking more like what Amazon does in only delivering its own items than what Target does with Shipt. Anirban Mahanti joined the show and took over hosting duties to ask some questions and help Dan break down what Walmart’s actually doing with GoLocal.

A full transcript follows the video

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Dan Kline  5:53  Joining me once again, is Anirban Mahanti. Anirban we are doing this a little bit later than we normally do it. So are you caffeinated? Are you ready to go about your day?

Anirban Mahanti  6:02  I’m fully caffeinated, I actually just finished my coffee while we were chit-chatting before we started recording. So I finished my coffee, I’m fully caffeinated.

Dan Kline  6:09  I had such a busy day, I didn’t get to coffee until about five o’clock, that’s gonna prove to be a mistake. I didn’t really think about it. Since like noon, I’m like I need a coffee. And then when I finally got to a 7-Eleven, which was dreadful coffee, it was much too late in the day for a 47-year-old man to be having coffee. But we’re not gonna talk about coffee.

Anirban Mahanti  6:28  I was just gonna say, I didn’t know that you had 7-Eleven coffee, I thought you always have a Starbucks (NASDAQ: SBUX) something.

Dan Kline  6:33  So, usually when I’m here, actually, I go to a local place. We have a Cat Cafe that has a wonderfully run local coffee shop. But I had to be someplace and it was on the wrong side of the road. But I didn’t have enough time to cross the road to go there. And I actually was going to miss coffee. But I had about five minutes. So I ran in. And yeah, it was not a good experience. Though 7-Eleven has upped its game this particular one had not.

But we’re going to talk about Walmart. My headline here is “can Walmart become a player in that last mile shipping”. So I’m going to set the table a little bit about Walmart, what Walmart is doing, and then Anirban is going to kind of take over the hosting chair, we’re not going to switch places. Because we’re what, a lot of 1000 miles apart. So switching places would be inconvenient, and you’re under lockdown so that’s not going to work.

But here’s what Walmart is doing. They’re launching a white label shipping service. What does white label mean? It means when the truck shows up, it’s not going to say Walmart. And they’re going to deliver goods for other retailers. So it’s a lot like what Instacart does with some of its partners. It’s a lot like what Target and Shipt are doing. The service will be called GoLocal. So that will be the branding, you see. The company, that’s Walmart, said it expects to begin shipping by the end of 2021. And that the delivery fleet would include newer technologies, such as self-driving vehicles, and drones. Much more on that later, because you know my skepticism.

We’ve talked before about the Domino’s commercials where they show the Nuro vehicle whose entire capacity is two medium pizzas. That is not an effective delivery method. And then just a couple of things here. Walmart said it will offer competitively priced shipping within two hours as well as a two-day delivery option. And the deliveries will be handled by a combination of associates, gig workers, and at times other delivery companies. So we don’t know a ton about this. But that is the basics. And let me hand this off to Anirban who’s going to take over asking me questions here.

Anirban Mahanti  8:28  Dan, thank you for letting me host, at least partially. So, this sounds like a bit of trying to compete with Amazon or trying to make a brand name for yourself in terms of last-mile logistics. Let me start by asking you, I guess the million-dollar question, do you think this has any chance of working out?

Dan Kline  8:49  No.

Anirban Mahanti  8:51  It doesn’t have a chance? That’s pretty brutal.

Dan Kline  8:55  I don’t want to say it doesn’t have a chance. But I think we saw Amazon had a very similar service that they’ve suspended. They haven’t killed it, but they suspended it. And we’ve seen historically that Amazon tried to do things like launch point of sale systems. Small retailers don’t want Amazon having their data. Because if Amazon knows, Hey, Dan’s toy store is selling this many copies of Go and this many copies of this version of Ticket to Ride or whatever it is or X amount of Magic the Gathering cards. Amazon could say, hey, Amazon customers in this area. Here are these products for 10% cheaper.

So there is a weariness that for some reason Target doesn’t have. Maybe because Target has historically been less, I hate to use this word, but corporately evil take that with a grain of salt. I’m not actually accusing them of evil but I can’t think of a better word. Where Walmart and Amazon have been very company first. Target probably too but they feel like they’re more about the community. And Target bought Shipt which had a track record of working with other companies. So if Walmart bought Instacart do I think like CVS (NYSE: CVS) would stop being an Instacart partner? No. But do I think local retailers? Now might Walmart make some deals with chains? Maybe. But Uber’s (NYSE: UBER) doing this to Doordash? Does this to Postmates does it too. There’s just so many players in the space. If I could say, hey, alright, I am a local pharmacy or even a CVS? Would I rather Walmart, which has a pharmacy, have my info, or these sort of more benign companies or pure shipping companies?

Look, Uber’s probably not going to open a pharmacy to compete with me or a toy store. Now, okay, if I was like a convenience store, well, Ubers of the world they do some of that. But for the most part, no, I see why they’re trying it. If you’re going to spend this much money on logistics, why not, beef it up and try to make the best use of it possible. And might there be things this works for? Or might there be partners identified that become part of the Walmart chain? Ya, absolutely. Just like in some Walmart’s, you might find a Subway or a Music and Arts or, a handful of other co-located stores. So aspects of this could work. But I think this is a lot more like Walmart buying, when they had no intention of running Their goal was to sort of figure out everything that makes sense and integrate it into what they’re doing.

So I think you have to announce that this is the strategy. I don’t actually think that this is the strategy. I think this is about how can we make Walmart delivery as efficient as possible? Because Amazon has a pretty big lead on Walmart there. You haven’t been in the US in a while. But like, basically, my community both of them, here in Davenport, Florida and back home in West Palm Beach, Florida, Amazon vans are really prevalent. And the amount of times my Amazon order isn’t delivered by an Amazon van is like once or twice a month out of like, I don’t know, 40 or 50 deliveries between my wife and I. So even their US Postal Service relationship is pretty much non-existent, not everywhere, but certainly my heavily populated area. And I’ll also point out that I am within two miles of an Amazon distribution center here in Davenport. So that probably makes it easier as well. But no, I am not at all confident that this is going to work.

Anirban Mahanti  12:22  Yeah, you answered my question. So I was gonna ask, I was gonna go off script and ask you what, what is this all about? Because again, you answered that at the end. Basically, this is mostly for appearance you are guessing, at this point, about making Walmart’s delivery more efficient, and sort of making that last mile as efficient as Amazon’s. And therefore, that can deliver some advantages. What I think is interesting, about this point, as an interesting anecdote, is while Amazon, for example, has this huge distribution network and last-mile delivery capability in the US.  It doesn’t have that, for example, in Australia, right? I mean, in Australia, it uses, DHL (ETR: DPW), Australia Post largely other delivery partners to deliver its things and still owns up for every mistake delivery partners do in terms of not delivering things and so on. It will give you credit where it doesn’t deliver it on time, it delivers to the wrong address it still gives you credit or resends the item to you, and things like that.

So one of the things I’ve always wondered, I think what you’re alluding to as well, a lot of companies want to do certain things because other companies are doing it. And it seems like you got to do it. But sometimes the urge to, to do it, maybe should be controlled and said, okay, we don’t need to necessarily do it, because there are other experts in that area. So I’ll take that to the second question.

Dan Kline  13:42  That’s a really valid. But let me let me jump here. That’s a really valid point. Because we’ve had an arms race here. That like two-day delivery was standard, then we went to one day. Now there’s this demand for same-day, I don’t actually think there’s a consumer demand for same-day across as many items as they think. Same-day grocery makes sense. Same day liquor store makes sense. I’m not so sure that if I need like green tea bags from Amazon, which is something I’ve ordered from Amazon, that I need the same day. If I need them, same day, I’m probably just gonna go to the grocery store.

So I think there is a will to compete, that doesn’t actually meet customer demand. But the problem is, maybe then you create customer expectations. Like I’m not so sure we ever needed to promise more than two day. And if it was two day and sometimes or even usually shows up in one. I think that would have been fine. I actually think Amazon kind of overspent and they would have been better off two day everywhere in the US. And then start going to the rest of the world because it isn’t just Australia. It’s every place else I’ve ever heard of with Amazon and I have friends all around the world. They do not have that capacity. And I understand there’s different laws. There’s even in some countries they deal with like less of a road structure and like some of those.

But sorry, I jumped on your question there.

Anirban Mahanti  14:57  No, no, no. It reminds me, this is what we mean by when we’re doing this, turning over the host responsibility to somebody else, if you go off-script what do you do? This reminds me of this thing that Steve Jobs used to say, if ask your customers what they want, they’re going to tell you exactly the stuff that they don’t want. They will tell you what they think they want, they will actually not tell you what they really want. Because they probably don’t know.

Okay, I’m gonna ask, because Walmart is effectively with this new unit, or new name, a new subsidiary, let’s call it, they’re looking to compete with the last mile guys, right? This is bad news for people like DHL, FedEx, UPS (NYSE: UPS) and the like? How bad is it for them? Or does it not really matter?

Dan Kline  15:44  So it’s potentially disruptive for FedEx, because FedEx has been a Walmart partner. FedEx made a very conscious decision to divorce itself from Amazon, and work with sort of everyone else. But I also think FedEx could still be a Walmart partner as part of this, this will probably cost them business, if it takes off. I don’t think it will. And the reality is, all of these services are competing with. The number of delivery services was in like the hundreds of 1000’s.

So there’s different local ones in every market, obviously, we talked about how all the food delivery services are looking at delivering other things. I think there’s a lot of business to go around. And like I know, it’s something we’ve talked about, I get food delivery significantly more than I did pre-pandemic, I don’t think that’s actually going to change when the world goes back to normal. There’s a lot of things like I’ll pay a little bit extra to get my liquor delivery from the faraway liquor store that has the stuff I want, I’ll pay that 10% premium and $99 a year. I think a lot of that’s not going to go away.

So as much as this will hurt a FedEx. I actually think FedEx like they’re broken when it comes to Christmas, they can’t handle the volume. So I’m not so sure if we’re in a market, we’re going to go from like 14% of the US retail market being online sales, and that climbs to like 22% to 23% over the next five years. I think that added volume is going to kind of mean that there’s room for more players. It’s all going to shake out. There might be losers, because if you’re FedEx, and you can’t get me my Christmas gift by Christmas and Walmart and Amazon can. Well that’s gonna hurt you for years to come. So there is an opportunity to screw up. But I don’t think so. I think this might be bad for like mom and pop delivery companies. But I’m not even sure what a mom-and-pop delivery company looks like. So I think FedEx will probably get through this Okay.

Anirban Mahanti  17:38  Cool. Okay, so one of the things that you talked about is, and everybody talks about this, right. And, we’re gonna use self-driving vehicles, there aren’t many self-driving vehicles out there. And Waymo might claim it has something happening in San Francisco in some gridlocked area. Then they of course claim, I love this, this ad about having pizzas being delivered by a drone right? But the problem with that is that the pizza is probably very, very cold by the time it arrives on the drone, by the air. And one of the things I’ve never really understood, everyone talks about this. If you use a self-driving van to deliver your goods. Well, who’s going to drop it in front of my door? Right? You have a robot that actually is going to pick it out and put it out on my balcony? Maybe not right? So is the tech there even? What do you think about the tech?

Dan Kline  18:30  No, and I don’t think it ever will be. And I’m not saying there will never be drones used. So Walmart extensively uses drones in its giant warehouses for inventory. Well, that makes sense. It’s enclosed. It’s controlled airspace, you can use RFID to just fly around, it’s really simple. Now, there were drone deliveries of supplies to a community here in Central Florida called The Villages, which is a very famous, 55-plus community. It’s one of the biggest ones in the world. It’s a very fast-growing community. And during some of the pandemic, well, they have big fields in places, like you could drop in supplies. But is a drone gonna knock on my door and deliver like my Buffalo Wild Wings order? No, that’s not practical.

And I think realistically, might you see on some city streets like, Look, do I think New York closes itself to most cars at some point? Yeah, I really do. So at that point, I think some sort of driverless vehicle make sense. I’ve talked a lot about how I think like a closed campus like Walt Disney World will use a lot of driverless technology and maybe drones. But how exactly when you live in a high-rise building in Florida, are they’re going to deliver you your Walmart order? Are you going to hang up the window? Well, that seems really dangerous

And you saw, I hate to pick on Domino’s (NYSE: DPZ), because they’re a technically innovative company, but they consistently produce misleading commercials or press releases. A few years ago they produced, we’re using reindeers to deliver. It was like a Christmas time thing. It’s like, no you’re not. Like that’s a stunt and a gimmick and I get it. There’s going to be someplace for driverless technology, maybe a college campus where they can’t go to your door anyway, you have to come down and meet it. And they’re delivering 100 pizzas at a time, maybe there’s going to be some sort of truck with a lot of compartments that can do those deliveries.

But those are going to be limited. And I like the idea that they’re pushing the technology, because you might have something like a driverless vehicle that has a worker in it to do that end of the delivery. Well, what’s the difference? There’s different licenses required for different trucks. So you might, the guy who’s delivering packages might be a cheaper, easier to hire a person.

You might see not for last mile, but for longer delivery. I don’t know what you call them. But in Connecticut, we have like dedicated bus lanes. And it’s buses that work almost like light rail, where instead of building a train, they’re just like, no, let’s just build a road that’s like parallel to the road, and only the buses could go there. You might see that for delivery and supply chain in some cities. And you want to see all of this technology pursued, because the situation that a drone is perfect for. Look I have a remote home in New Hampshire, my closest neighbor is probably half a mile away. There is no pizza place that delivers. That might be a really great place where I’d be pretty thrilled to get a cold pizza. Because I don’t have to drive six miles into town.

So there’s going to be uses for this and you need to be exploring it. But I never bought, you remember when Amazon was putting on all the videos of its drone, and it looked like a drone that could take your head off that had like the capacity to deliver, like, I don’t know, like a box of Junior Mints. Like it just didn’t seem all that practical. And I know we want to talk technology, and you have to lead with that. But Walmart’s technology for this is going to be on the back end. It’s going to be sorting robots, it’s going to be. I’ve talked about this before, but the greatest savings that Walmart has ahead of it is that they employ over 100,000 people picking curbside pickup orders. That can that can be 10% of that and very easily automated. And I understand that there’s some things, like maybe you want your prime rib to be picked by a person or even your ground beef. Well, okay, you can separate out the items that need to be added by a human.

I think there’s going to be amazing efficiency in the backend. Obviously, Amazon has been the leader in that. And the fact that they bought Kiva and own the robots gives them a pretty big edge. But Walmart has not been hesitant to spend when it comes to that kind of stuff. They don’t like it as much as Amazon does. Amazon will tout that they’re taking their profits, Walmart will do that very reticently. But I do think they’re gonna do that here. But no, do I think a robot’s gonna knock on your door after getting out of an unmanned vehicle that was dropped off by drone? No, that’s probably not going to happen.

Anirban Mahanti  22:47  Okay, I like you’re current read there. One of the things I think about when people talk about using self driving, right? I mean, I think self-driving has got nothing to do with last-mile delivery, self-driving is all about increasing safety. Right? So you want self-driving so that you have safe vehicles on the roads, so it reduces accidents and things like that. That’s got nothing to do with efficiency of delivery. So I take your point there, and the point about the drones. Well, you’ve already answered this question. Maybe this is a rhetorical question in that sense. Do you think this is going to eventually succeed? Or I guess maybe I’ll rephrase the question.

Dan Kline  23:36  To be fair, I wrote the questions. And I wrote the same question twice. So this is not your fault.

Anirban Mahanti  23:42  Yeah, no, no, I want to rephrase this question to make it actually interesting. So let’s say it doesn’t work the way it is advertised to be. Right. What would be I guess the takeaway wins for someone like Amazon or someone like Walmart invest in something like this? Are they going to get some other out-of-a-box win or lateral wins that they could leverage off overtime?

Dan Kline  24:08  Yeah, I think there’s going to be acquisitions because of this. And that might be efficiency and back-end stuff. I think there’s going to be partnerships. So they might find that like, wow. And I can’t think of an example, let me just pick a ridiculous one. We don’t sell patio furniture. And there’s a national patio furniture chain, that we found that if we can add delivery, that’s a terrible example. Because patio furniture is huge, and it probably wouldn’t work. So that’s a bad example. But I’m just trying to pick something ridiculous. They might find some partners that are very complimentary to what they do.

And I know it seems like Walmart does everything, but they do everything to a point. Like maybe a garden center, maybe they find that like Lowe’s (NYSE: LOW) and Home Depot (NYSE: HD) are really good partners. Not for delivering like sheetrock but maybe for delivering paint or who knows what it might be that Walmart doesn’t sell.

So I think there will be aspects of this that will work where they’ll be. For a while, in some markets, it will look like Instacart, where you go into your Walmart, your GoLocal, and you can order from like 15 different brands. I don’t think that’s going to be feasible. But I do think Walmart needs this capacity just for Walmart. So if they can identify, maybe it becomes, there’s a McDonald’s in a lot of Walmart’s, wow, like this is a way more efficient way to deliver McDonald’s than using Doordash or Uber Eats.

There’s going to be learning here, there’s going to be partnerships, there’s going to be look, Walmart still needs to figure out, when is it worth it to entice you to come to the store. And I think that’s really important, like Amazon right now with their business model kind of has to go like, everything is best delivered. Like if you’re Walmart, you might want to find, alright, like I can deliver this a certain way, but if you come to the store, hey, we’ll give you 5% off, or we’ll throw in the batteries or whatever it might be. I think there’s a lot of AI and I do think Walmart is behind Amazon, we talked a lot about how Amazon-like knows that you’re buying like razor blades and shampoo and hibiscus tea, and like has that packaged before you even order it. That is certainly not such a. Walmart is obviously doing some of that, but not to the same level.

So I really think this is a front for Walmart sort of building out its capacity. So they will frame this as a success. But if you match it to the day-one press release, I don’t think that’s what its going to look like and I know that’s. I applaud Walmart for the effort here, because I’m not sure you get the national media coverage they got today, if they said like we’re gonna spend more on infrastructure. I also think Walmart hasn’t built up. And we talked about this a little earlier, that shareholder thing where they can say like, Hey, we’re gonna spend a lot of money on something that doesn’t make money for a while, unless it sounds really sexy. And you know what sounds really sexy, drones. Drones and driverless vehicles are sexy. If we say yeah, it’s robot arms that help us sort packages better. That’s a tough one to sell.

So again, this is going to evolve. This is probably a three to five-year story before we know what it looks like. And look, I was very clear when they bought that they were buying Marc Lore and his team, and that they were not going to run these two services together. So I think I have a track record here that maybe I am right.


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