WMT Walmart Inc

By Sarah Nassauer 

In the backroom of a Walmart store in Salem, N.H., is a floor-to-ceiling robotic system that the country's largest retailer hopes will help it sell more groceries online.

Workers stand on platforms in front of screens assembling online orders of milk, cereal and toilet paper from the hulking automated system. Wheeled robots carrying small baskets move along metal tracks to collect those items. They are bagged for pickup later by shoppers or delivery to homes.

Walmart is one of several grocers including Albertsons Cos. and Kroger Co. that are using automation to improve efficiency in a fast-growing but costly business that comes with a range of logistical challenges.

The backroom robots could help Walmart cut labor costs and fill orders faster and more accurately. It also could address another problem: unclogging aisles that these days can get crowded with clerks picking products for online orders.

A store worker can collect around 80 products from store shelves an hour, estimated John Lert, founder and CEO of Alert Innovation, the startup that has worked with Walmart to design the system dubbed Alphabot. It is designed to collect 800 products an hour per workstation, Mr. Lert said. Workers stock the 24-foot high machine each day with the products most often ordered online, including refrigerated and frozen foods. Fresh produce is still picked by hand in store aisles.

A version of the Alphabot system will be built in the backroom of two more stores later this year, one in Oklahoma and another in California, and a fourth version of the system is already built in a store near Walmart's headquarters, a Walmart spokesman said. Mr. Lert and the spokesman declined to share the cost of the system. Walmart started testing Alphabot in Salem two years ago, but in recent weeks started using it to fill a significant portion of online grocery orders for the first time.

Walmart, already the country's largest seller of groceries by revenue, has become an online grocery heavyweight, too, by offering a service from thousands of stores that lets shoppers pick up online orders from store parking lots without leaving their cars. It also offers home grocery delivery from more than a thousand stores.

Online orders are still a relatively small part of total grocery spending. E-commerce was about 3.5% of overall food and beverage category sales last year, according to market researcher Forrester. Some data show online grocery sales are growing fast, but the logistical and profit challenges of asking workers to select food for shoppers or delivering fresh food to homes have kept retailers battling to find a model that works.

Using store workers to manually collect products from shelves isn't only costly, it makes it hard to tell online shoppers exactly what's available at any given moment.

"The whole problem with picking inventory from the shelf is inventory is never where it's supposed to be," said Sucharita Kodali, retail analyst at Forrester. "People move it around, and fast-moving items are never there."

Walmart, which employs around 1.5 million workers in the U.S., told investors last year that the retailer aimed to add automation and remodel stores to better accommodate online orders after some shoppers complained about clogging in the aisles. Walmart can't "disadvantage our most profitable customer, which is the one who drives to the store and does all the work themselves," then-Walmart U.S. chief Greg Foran said at the time.

Albertsons, whose chains include Safeway and Jewel-Osco, is adding automated online grocery fulfillment devices in store backrooms designed by Takeoff Technologies. It added two of the systems to California Safeway stores last year. Kroger and Koninklijke Ahold Delhaize NV's online grocery unit, Peapod, are investing in larger, more-remote distribution centers to further automate the process of grocery delivery.

Using stores and backrooms to collect online grocery orders gives retailers another way to generate income from assets they already have, industry consultants and executives say. Walmart also has been looking for other ways to use its existing base of around 4,700 U.S. stores to compete with Amazon.com Inc., including adding more services like health care and selling technology like computing power based in stores to other businesses.

Walmart first talked to Alert Innovation about building an automation system in 2016, Mr. Lert said. At the time, Walmart executives believed that for online grocery fulfillment to become more profitable, fulfillment had to happen close to customers and without sending workers weaving through aisles for every order, Mr. Lert said.

Walmart added 20,000 square feet of space to the Salem store to facilitate the Alphabot system and more space for shoppers to pick up orders in cars. It picked Salem because of its proximity to Alert's headquarters in North Billerica, Mass.

The store hired around 10 additional people to keep the machine stocked and continue picking some fresh produce from the store shelves, the Walmart spokesman said. "At this point we haven't seen any movement in the head count."

In a continued test of the concept, the spokesman said, the two additional stores where Walmart plans to install Alphabot are in areas with high demand for online grocery orders.

Write to Sarah Nassauer at sarah.nassauer@wsj.com

(END) Dow Jones Newswires

January 08, 2020 11:14 ET (16:14 GMT)

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