Walmart’s Quest for Online Groceries
Lessons in digital experimentation
In any digital transformation, your company is constantly faced with change, opportunity, and uncertainty.
The question is, how are you going to deal with it?
In most established organizations, the usual playbook for dealing with change is planning, planning, and more planning.
Instead, we need to flip that script and look at every opportunity facing our business through an approach of experimentation.
This means validating new ideas in the market—and staying flexible and open to learning as you test.
Businesses do not succeed in the digital era because they start with the best business plan. They succeed because they learn rapidly from customers and the market, and use that learning to revise, pivot, and adjust their idea until it reaches the right combination of factors for liftoff.
One great example of this is Walmart.
Yes, a pretty traditional company, but one that is learning to think very differently.
Walmart Wants to Help You Get Your Groceries
We can see this thinking in how Walmart has pursued one of its biggest opportunities in the digital era: online grocery ordering.
When I visited Walmart Labs in Silicon Valley to meet with then-COO Jeff Shotts, the company was laser focused on its goal to “define the e-commerce future of grocery purchase.”
Groceries are incredibly important for Walmart’s physical retail business because they are a high-frequency purchase category. When a customer gets in the habit of picking out their groceries at a Walmart store, you can bet that the retailer will be able to serve a lot of additional shopping needs as part of these frequent visits.
The opportunity to do the same with Walmart.com was irresistible.
Walmart’s ecommerce business already had a sizable number of customers, but too many of them shopped there only a few times a year. Grocery ordering could change that.
The opportunity was also compelling because online groceries are hard to get right, thanks to perishable goods and the challenges of the last mile of delivery.
Customer needs were not well met by competitors. And that meant Walmart had an opportunity to lead, if it could just deliver the right solution.
Testing, Testing, and More Testing
Walmart did not go after this opportunity by making a big, detailed plan replete with business cases and financial forecasts.
Walmart’s leaders did not decide from the top what the best way forward was going to be.
Instead, teams at Walmart Labs engaged in a constant cycle of rapid experimentation—testing in the marketplace, often with quick and simple prototypes, to learn what would and would not work in the real world.
They tested different models for how to deliver: from hiring their own fleet of drivers, to partnering with the delivery app DoorDash, to having Walmart store employees drop off packages on their drive home after work.
They also tested different pricing models. A key unknown was the customer’s willingness to pay for grocery delivery.
As Shotts explained to me, for any innovation to work, Walmart must “try to figure out how can we scale an offer that’s good for the customer, while still meeting some economic thresholds that we have.”
When You’re Not a Startup…
With Walmart’s low prices and razor-thin margins, finding the right formula was essential to drive customer adoption while being financially sustainable.
Walmart Labs was not operating on venture capital from investors seeking huge growth but willing to wait 10 years for a payback.
Walmart needed to make money off its grocery delivery, and fairly soon.
This brought a certain hard-nosed realism to their experiments.
“It’s hard to make money on a $25 basket if you are delivering it for free,” Shotts explained. “I’m not opposed to testing that. But scaling it is a real challenge.”
What Worked? (Not Just One Thing)
Walmart ran numerous experiments, testing different price points for paid delivery, free delivery with a minimum basket size, and an annual membership model like Amazon Prime.
It turned out that the “best” solution depended on the segment of customers being served.
Here’s what worked:
Unlimited grocery delivery with annual membership.
Walmart discovered that many customers were willing to pay an annual membership fee, if it would provide them with unlimited free grocery delivery.
Based on this, the company launched a service called Walmart+, where membership gets you free delivery of groceries (with a $35 order minimum). It also includes free one- or two-day delivery from Walmart.com, and additional perks such as savings on gasoline and tire repairs.
Pay per delivery.
Other customers didn’t want to commit to an annual plan. But Walmart found many would pay a reasonable fee per order. So, grocery delivery was also offered without a membership, priced at $7.95 per delivery.
Buy-online-pickup-at-store (BOPS) for free.
Still, Walmart found that many other customers didn't want to pay for delivery at all. Not per delivery, not an annual fee, no fee ever.
To these customers, Walmart said, “Okay. We hear you. Just meet us halfway. We will create a great app experience for you to place your grocery order on your phone, with a great UX and algorithms to make suggestions and remember your shopping habits. Once you click ‘done,’ we will go through the aisles and pull all your grocery items off the shelves. We'll put them all in grocery bags for you.”
There was just one request. “All you have to do is drive by a Walmart store. You don't even have to get out of the car. We'll bring it out to you, and an employee will put them in the trunk of your car.”
This approach, called “buy-online-pickup-at-store” (BOPS) turned out to be not only a profitable model, but something that really clicked with cost-conscious customers.
It also turned out to be incredibly scalable.
When pandemic lockdowns led to a huge surge in demand for online grocery ordering, no company offering traditional delivery could hire enough drivers to meet demand.
But Walmart’s BOPS model scaled beautifully.
Validation Never Ends
Testing and learning do not end when a product or service launches.
Customer behaviors and expectations keep changing. So, innovation teams need to keep testing and learning to understand customer needs and validate new ideas.
As lockdowns eased, Walmart discovered a surprising new customer wish.
Certain customers wanted to not just have a delivery person bring groceries to their home and leave them on their doorstep, where their ice cream would quickly melt.
They were willing to pay extra for a delivery person who would come inside and put their food away for them in the refrigerator and freezer.
So, an additional service, dubbed Walmart InHome, was launched. The service comes with greater personalization, additional security measures, and a premium price.
5 Tips to Follow Walmart's Playbook (and 1 Video)
To keep up with the pace of digital change, every business can and must learn to follow Walmart’s example in experimentation.
This does not just mean setting up a single “skunkworks” team to chase after a big idea out of sight of the rest of the company.
It means learning to repeat the process of experimentation across your business for different new ventures and new ideas. These may include new products, new customer experiences, new marketing strategies, or entirely new business models.
To help you get started, here are five tips to follow in Walmart’s steps:
Tip 1: Pick a Problem That Matters
Ask yourself: what is your “grocery” problem to solve?
You want to set your innovation teams working on unsolved problems that will truly deliver an impact if you can uncover an effective solution.
Look for a problem where the customer dissatisfaction is high, where improving your standing would yield outsized benefits for your company overall, or both.
Tip 2: Try Different Ideas
To build even one venture that has an impact on your business, you will need to test many ideas, shut some down, and change others, repeatedly, in response to testing and feedback.
In Silicon Valley, startups offer the wisdom to “fall in the love with the problem” rather than the solution you imagine at the outset will fix it.
To this I would add: companies should be ready to commit to a problem that matters, but stay flexible as they test a wide range of different solutions.
Tip 3: Draw On Your Unique Advantages
As Walmart focuses on digital growth opportunities, it keeps a very close eye on the unique advantages that set it apart from competitors.
First among these is Walmart’s store network. As COO Jeff Shotts told me, “The biggest asset we have is 4,700 stores in the US that are within 10 miles of 90 percent of the population in America.”
Although built for the company’s brick-and-mortar business, Walmart’s stores are being leveraged to solve the last mile of its online business too—from its Walmart+ service, to faster delivery for Walmart.com thanks to mini-fulfillment centers built alongside stores.
What unique advantages—intangible or physical assets, data, or other capabilities—could you leverage in your next innovation?
Tip 4: Use Small, Multi-Functional Teams
One of the keys to rapid experimentation in large companies is to not try to run it with the siloed functional teams that are most common in legacy businesses.
Instead, start-ups and corporate innovators alike work fastest when they make use of small, dedicated teams of 5-10 people with diverse skills—such as marketers, consumer insights experts, UX designers, and software developers.
Tip 5: Set Transparent Metrics
At Walmart Labs, transparent tools display each product team’s members, what they are working on, and every piece of code published.
Accountability and transparency are critical to giving small teams the freedom and autonomy to move fast without seeking sign-off from above on every market test or pivot in the design of their solution.
Make sure each of your innovation teams has a clear definition of success for the problem they are working on, and quantifiable metrics that let everyone know how the team is progressing. Then, get out of the way and give them the room to move fast until their next sprint is over and they bring back their learnings to share.
Walmart Case Recap
Here’s a short recap of the Walmart case, and what every business can learn from it, from my keynote address at DPW. Enjoy!
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