The Wal-Mart Weekly: Online grocery shopping growth possibilities

The opportunity is enormous

If you've heard of Webvan (now defunct) or Peapod (severely limited delivery), you probably know that many companies have tried -- and failed -- at offering online grocery ordering and fast delivery (same day is generally the customer need). The inherent problem these businesses faced centered on the fact of giving customers the information they needed to affect a paradigm shift in grocery retailing. Yes, one can start small in the larger markets, find out what works and what doesn't, tweak the ordering and delivery model and try to get the business running while kinks are worked out of the system over time.

But the challenges have been many, especially when perishable food items enter into the equation. If a customer -- who has access to ordering 24/7, orders a few hundred dollars in food and need delivery of those items (including meat and dairy products needing refrigeration) by the end of that same day, how do you accommodate that? Build huge warehouses next to food distributors and have an army of refrigerated trucks waiting on call all hours of the day? That's been tried, and much of it failed. But Wal-Mart has one supreme advantage -- it has stores in virtually every corner of the country and could easily have a fleet of "green," eco-friendly delivery trucks ready to meet the needs of online ordering customers. Does it want to enter into this unproven space, though?

The risks are enormous

The business model of a nationally functioning online grocery ordering and delivery system would pose quite a challenge even to the world's largest retailer, which is known for having exquisite Information Technology systems that track inventory to the nth degree and then some. But consider this: starting even in larger markets (not nationally) would present a burden on many Wal-Mart stores if that's how a new online ordering program were to be implemented. Wal-Mart couldn't use distribution centers due to the lack of locations.

No, the only way it would work is if individual store locations were involved, where products (non-perishable and perishable) could be sourced by a Wal-Mart employee based on an online customer order, picked off the shelf (or automatically picked if that is possible), sent to a delivery truck and then delivered in timely fashion to the waiting customer. Multiply that very simple scenario times a few thousand customers (to start with) and you can see how incredibly cumbersome a program like this could easily become. And, we're talking about taking store shelf inventory away from brick-and-mortar Wal-Mart customers as well. Of course, some would switch to online ordering to displace physical visits, but shifting to a larger volume of sold product quickly could disrupt in-store inventory levels and push even more customers from the retail to the competition.

The risk here would include the ability to recruit new customers to Wal-Mart's online ordering system while not disrupting the flow of the consumer experience inside all those Supercenters and reliably predicting volume (in stores and on the web).

The testing is waiting

But, what is stopping Wal-Mart from possibly igniting the next phase of its growth (if that exists) by becoming the eventual market leader in online grocery ordering? It's hard to fathom the requirements of a program like this, and I've just covered the store-based challenges and have not yet gotten into the home delivery angle of the equation. But, with the number of physical stores Wal-Mart has, it seems logical that some kind of test or pilot would let it know what capabilities it has. It's already into the online ordering game as referenced at the start of this column, so some infrastructure is in place, although for easy-to-deliver non-perishable foods using parcel delivery (not Wal-Mart's own internal resources).

It's quite a jump from current efforts to beginning a pilot that makes a majority of the grocery section inside a typical Supercenter available to order online with a quick turnaround time on delivery, right? Sure it is, but the possibilities are endless if such an effort could work and then expand to most of the U.S. The financial risks are there related to an effort like this not catching on with consumers, but with everyone I know being strapped for time these days, that is the most precious resource among many Americans -- time.

If Wal-Mart could build a case for an online ordering and delivery program, market it correctly to current and potential customers and flood appropriate markets with how a program like this could give busy moms and dads more time with the kids, for recitals and soccer games, etc., things could easily click for millions of families in this country. That may be all the retailer needs to kickstart an effort like this into a future engine of growth.

Join me again right here at BloggingStocks next week for another edition of The Wal-Mart Weekly. Until then, have a safe weekend!