Why Walmart is getting in on the DoorDash and Uber Eats delivery action

walmart Dunkin’ iced coffee and maple donuts will be available soon.

The nation’s largest retailer announced this week that it would begin delivering Dunkin’ products from its own stores, but then plans to expand the program over the next year to include most of the nation’s 10,000 donut chain stores, most of which are outside Walmart stores. The out-of-store experiment builds on a similar delivery program the retailer has run with its in-store Subway restaurants.

Industry experts say this amounts to Walmart taking on competing food delivery services such as: Uber Eats and door dash. Walmart, on the other hand, bills it as a natural extension of what it already does.

“We see this as a way to continue adding value and convenience for our customers within the shopping experience they already know and trust. By combining restaurant delivery with Walmart’s vast selection, we can create a delivery experience that gives customers more of what they want in one place,” a Walmart spokesperson told CNBC.

So when you order an iced latte or cinnamon cruller, add toilet paper, mouthwash, and socks to your order. That’s important, said Hongseok Jang, assistant professor of management science at Tulane University. Jiang, who has been researching online delivery, said Walmart has a huge built-in customer base, stores and existing logistics network that would make it a strong competitor for other food delivery companies.

A Walmart spokesperson said Dunkin’ deliveries will be made through a new service called Walmart Restaurant Delivery, of which Subway is the first partner.

“It looks to me like Walmart is testing the viability of its own delivery system. If it’s successful, there will be big competition between Walmart and Uber Eats and DoorDash,” Chan said.

Walmart’s Dunkin’ announcement suggests as much, with the retailer calling itself a “rapidly emerging competitor in the restaurant delivery business.”

Mike Dunford, co-owner and chief strategy officer of Adverio, an e-commerce marketing agency that works with brands sold at Amazon, Walmart and Target, said it’s a big change for Walmart to start shipping products from outside Walmart, such as Dunkin’ stores.

“Delivery from a restaurant in your building is not a restaurant-specific delivery. It’s just adding one more item from your shelf to your shopping cart, and the Spark driver was already there preparing the grocery order,” Dunford said, referring to the company’s Spark Driver platform, which allows independent contractors to source gig delivery jobs.

But Dunford said “Phase 2,” when Walmart begins delivering from off-site stores, is a different story. “Once you leave your building, that attachment is broken and you’re essentially running a pure delivery economy versus DoorDash and Uber Eats, which are already in that position,” he said.

The economics of donuts don’t mean much in and of themselves, but that’s not Walmart’s goal. Walmart has huge customer demand for groceries, and adding another layer to orders, such as restaurant delivery, will further increase the retailer’s revenue stream, with that small donut order serving as a gateway for customers to order other items through the Walmart app, Jiang said.

“Walmart’s biggest advantage is that 90% of Americans live within 10 miles of a store, and they can take advantage of that by combining restaurant orders with all their products,” Chan said.

“Taken in isolation, coffee and donut delivery is one of the worst baskets in the industry. Order values ​​are low, temperature sensitive, and time is of the essence. It’s nearly impossible to make a profit just by delivering single-serve coffee, but that’s not what Walmart is doing,” Dunford said. “They’re just adding coffee to a grocery order for a trip that was already scheduled,” he added.

This increases the basket size, and what makes it even more attractive to Walmart is that coffee can be ordered daily, whereas groceries can be ordered weekly, biweekly, or monthly. “This could easily increase the frequency of orders per customer. Additionally, donuts and coffee are not products. These are the reasons why some people open the Walmart app at 6 or 7 a.m. instead of once a week to order some groceries,” Dunford said.

Walmart hinted at the growing importance of this type of business in its second-quarter earnings release. “Customers want value, they want convenience, and they want responsiveness, and that’s where Walmart excels,” said John David Rainey, chief financial officer. In its latest financial results, weak sales weighed on the stock price, while short delivery times (30 minutes or less) in the U.S. rose 48% in the quarter.

Greg Cathy, Walmart’s senior vice president, wrote in a blog post this week that since the launch of Subway service, nearly 65% ​​of restaurant orders have been delivered with the Walmart item the customer needed right away.

“We’re learning a lot about how customers are using the new service, including the fact that restaurant delivery is driving more customers to Express Delivery,” Cathy wrote, adding that one in five orders involving both Subway and Walmart products is a customer’s first time using Express Delivery, and nearly 30% of those customers return within 30 days.

But Amrita Bhasin, co-founder and CEO of Sotira, an AI-powered supply chain platform, said Walmart needs to increase delivery density and optimize routing to become a true competitor to DoorDash and Uber Eats. “If someone orders food in a rural area at odd or off-peak hours and a driver has to take on that route alone, it complicates the economics by increasing costs for the user and compressing Walmart’s margins,” Bhasin said.

In effect, customers will be demanding different standards from Walmart than they do for toilet paper or dog food. “Grocery delivery is time-sensitive and customers have low tolerance for long waits, delays, and cold food. Walmart needs to maintain a certain level of speed and customer experience while maintaining reasonable costs for consumers,” Bhasin said.

RJ Hottobee, head of analytics and research at location analytics company Placer.ai, said the Dunkin test (assuming iced coffee never reaches room temperature and hot coffee never reaches room temperature) will establish Walmart in this space.

“Walmart’s expansion into third-party delivery is more than an in-store partnership strategy. Expanding delivery to Dunkin’ stores beyond its own stores shows that Walmart wants to be a restaurant delivery marketplace, not just a landlord,” Hottovy said.

Still, he said, Walmart operates with a fundamentally different cost structure than DoorDash or Uber Eats because it fulfills orders through a delivery network that already delivers from stores.

“You can buy coffee and donuts at a lower price, but Walmart doesn’t need a $6 Dunkin’ order to function on its own. For the economy to work, that order needs to be attached to the existing $80 grocery basket,” Hottovy said.