News reports are circulating that Walmart, in an effort to better compete against Amazon in online grocery delivery, is partnering with Instacart. Pilots will be conducted across four markets spanning California and Oklahoma.

I question the partnership. Here’s why.

Grocery sales accounted for 56% of Walmart’s total U.S. revenue in 2019, making Walmart the country’s largest grocer. Kroger is the largest stand-alone, pure play grocery retailer but Walmart sells more groceries than Kroger.

Walmart recently revealed it is working on a retail subscription service to rival Amazon Prime, called Walmart+ and will launch in August or September. Walmart+ will offer customers who subscribe to the service same-day delivery and exclusive discounts for $98 per year. Let me be clear – not a single Amazon Prime member will cancel their Prime membership and sign up for Walmart+. In addition, few if any Prime members will pay for a Walmart+ membership and a Prime membership.

Walmart+ is about 15 years too late.

Overall net sales at Walmart U.S. in fiscal 2019 were $341 billion, up 2.8% from $331.67 billion in 2019. Comp-store sales rose 2.8%, with no significant impact from fuel price changes. Full-year e-commerce sales climbed 30%. Operating income was flat at $17.38 billion. All sales at Walmart in 2019, including their international locations, was $514B.

How is it possible that a company that generates 56% of its revenue from groceries, can’t do a better job of designing and implementing strategies to give them a competitive advantage over Amazon when it comes to online grocery ordering and delivery?

The first Walmart Supercenter was launched in Washington, Missouri in 1988, and contained a full-scale supermarket. I believe the decision by Walmart founder Sam Walton, and former CEO David Glass, to open Supercenters and sell groceries is one of the most brilliant business decisions in the history of retail. Selling groceries supercharged Walmart’s growth.

This also means that Walmart has been selling groceries for 32 years.

Kroger was founded in 1883 and has been selling groceries for 137 years.

By comparison, Amazon launched AmazonFresh in 2007 and acquired Whole Foods in 2017. Amazon has only been selling groceries for 13 years. I have to ask: How is it possible that Amazon, with the least amount of grocery experience, is the most innovative and one of the dominant grocery retailers operating today?

A Failure of Leadership

The fact that Walmart believes entering into an agreement with Instacart makes sense is a clear indicator to me that Walmart is suffering from a failure in leadership. Walmart is also suffering from a lack of innovation and execution. Frankly, Walmart partnering with Instacart means one thing – Walmart has come to the conclusion that they can’t do last mile delivery. Embarrassing.

Walmart should also confess that they’re not very good at fulfilling online orders. I am incredulous that the best Walmart can do is use pickers to clog their aisles and create a lousy customer experience for consumers who go to Walmart to shop for groceries. I have shopped at 17 Walmart locations since January in order to evaluate first-hand Walmart’s process for fulfilling orders. I have spoken with Walmart associates and customers. No one is happy with the complexity and congestion. No one.

Walmart has chosen the path of least resistance over and over again when it comes to its online grocery strategy. Case in point, Walmart’s failure to leverage its own associates to make online deliveries is staggering. I spoke with several Walmart personnel intimately familiar with the program and I am convinced the program failed because of the lack of leadership. Period.

I guess this means I HATE WALMART doesn’t it? Wrong. I love Walmart. I think Walmart is one of the most incredible companies ever launched. Sam Walton and other Walmart executives challenged the status quo and ushered in a new age of retail. Walmart’s current CEO, Doug McMillon, is arguably one of the best CEOs in business. (I believe it’s plausible that McMillon will be asked to run as a Democrat for the U.S. Senate or for President; possibly as early as 2024).

What frustrates me is that Walmart isn’t Thinking Big. It frustrates me that Walmart isn’t more innovative. I remain convinced that between 2027 and 2035, Amazon will accelerate their grocery sales. It is plausible that Amazon will first pass Kroger and then Walmart in terms of grocery sales. Under no circumstances can Walmart lose the grocery war to Amazon. As I stated earlier, Walmart generates 56% of their revenue from selling groceries. Imagine if Amazon reduces the number to 40% or even lower?

Partnering with Instacart??? All this means is that Walmart will make the same mistake as Costco, Kroger and other large grocers who foolishly signed a contract with Instacart only to teach Instacart everything about their business models. This is why I refer to Instacart as a Trojan Horse in the articles that I write about the grocery industry.

I anticipate that Instacart will make a significant investment in fulfillment, including micro-fulfillment center technology, to establish a network of fulfillment centers across the U.S. Instacart will utilize the facilities to fulfill groceries faster and cheaper for their grocery retail clients.

As Instacart builds out their fulfillment network and increases their fulfillment capabilities, Instacart will find it easy to walk away from their grocery customers and instead, only market Instacart.

As Jeff Bezos stated, “Your margin is my opportunity.” Instacart can create a grocery model whereby groceries are delivered from suppliers direct to their fulfillment centers. (I believe Instacart will launch their own private label brands to supplement sales of national brands).

Robotics and micro-fulfillment technology will automate the majority of the processes utilized to fulfill online orders greatly reducing costs for Instacart while increasing speed to customers. Where strategic, Instacart will open Instacart branded stores.

Instacart has pricing and supplier data from every grocery retailer they serve. (Soon they will have data from Walmart). Leveraging this data in conjunction with a highly robotic and optimized logistics and last mile delivery network, will provide Instacart with a competitive advantage.

What I outline will be easy for Instacart to achieve as they own and control customer data for millions of consumers. The data includes email addresses, phone numbers, customer names and addresses, customer log-in names and passwords, and credit card data. Instacart will be able to seamlessly transition customers from local retailers to an Instacart online store. As for Instacart’s grocery customers, they will quickly realize that Instacart was indeed a Trojan Horse.

I must also point out that sooner rather than later, Instacart may be acquired; Google, Microsoft or Facebook are at the top of the list of companies most likely to acquire Instacart. Whoever acquires Instacart will have access to all of the data and pricing information Instacart has accumulated, and they will not hesitate to use it to their advantage.

Could Instacart be in danger from Walmart as a result of the partnership? It’s common knowledge that Walmart has been accused of stealing ideas from competitors and even companies they have partnered with. However, I’m confident that Instacart will carefully manage and control all data and implement risk management protocols to prevent Walmart from accessing data that could provide essential information about Instacart’s business operations and the operations of the grocery clients served by Instacart.

I am frequently asked if Walmart or Amazon should acquire Instacart? My advice to Walmart/Amazon would be to not acquire Instacart. Why? I’m confident that there are better strategies that Walmart/Amazon can leverage for much less than the capital required to acquire Instacart. In addition, the minute it’s announced that either Walmart or Amazon have acquired Instacart, the value of Instacart will decrease because most of Instacart’s grocery customers will end their relationship with the company.

Note to Instacart: You’re making a BIG MISTAKE in not partnering with the USPS. The USPS has thousands of facilities across the USA capable of installing micro-fulfillment centers. This will allow Instacart to more easily fulfill groceries to their customers. In addition, Instacart can leverage the USPS as the foundation for their own Instacart-branded grocery distribution network. Amazon has significantly reduced their reliance on the USPS, and with mail volumes decreasing, the USPS is exploring options for generating additional revenue. A USPS/Instacart partnership offers incredible potential.

Facing Reality

I strongly advise Walmart to walk away from the agreement with Instacart. As in do it today.

I strongly advise Walmart to contact Louis Borders and ask him this question: How would you like to become our Ocado? (Read this article to understand what I mean). In my opinion. Borders has created a magnificent model for online grocery fulfillment that Walmart can leverage to it’s advantage. Investing in Borders’ company, Home Delivery Service, or acquiring Home Delivery Service, should be explored by Walmart.

Just as micro-fulfillment is strategic to Instacart, Walmart must rethink their strategy when it comes to the use of micro-fulfillment centers (MFC) to automate the fulfillment of online grocery orders. It is time for Walmart to become much more aggressive in finding a MFC solution to meet their needs. I remain underwhelmed by Walmart’s efforts as I believe they lack a coherent strategy.

Walmart tested MFC technology from the company Alert Innovations, but it appears the system didn’t meet Walmart’s needs. (I warned Walmart that Alert Innovations was the wrong platform to test).

It now appears Walmart is planning on testing an MFC solution from a startup with a clunky, high-cost, high maintenance shuttle-based system, who is partnering with another MFC company that is using a clunky, high-cost and high maintenance shuttle-based system. Serious? This is the best Walmart can do?

I am recognized globally as one of the leading experts on the topic of micro-fulfillment and based on my research and experience, I have formed an opinion that goods-to-person shuttle-based systems, like those sold by MFC startups TakeOff, Fabric, Dematic, Exotec and Attabotics, should be avoided. I do, however, like the goods-to-person system from the company Addverb, and I recommend that Walmart evaluate their solution. (I don’t work for Addverb and I am not paid by Addverb).

Geek+ is also a company I highly recommend Walmart evaluate. I think very highly of the technology and solutions from Geek+ and I believe it would prove valuable to Walmart. (I do not work for Geek+ and I am not paid by Geek+).

Regarding micro-fulfillment solutions, I recommend that Walmart pilot an MFC solution from the company AutoStore. (If I was the CEO of Walmart, I would not consider any other MFC solution). AutoStore is a cube-based system that has the MFC industry’s highest operating uptime at 99.6%. Uptime is a critical measurement when considering an MFC. Shuttle-based systems are notorious for their lower uptime and maintenance requirements. (I do not work for AutoStore nor am I paid by AutoStore).

Walmart must automate grocery fulfillment by installing MFCs in select Supercenters thereby removing pickers from aisles. MFCs will also automate the process of fulfilling curbside pickup orders. Walmart can reduce their labor costs by hundreds of millions of dollars through the use of MFCs.

If I ran Walmart’s MFC program, I would have found a company to acquire (AutoStore, Addverb or some other company) and I would leverage a strategy similar to what Amazon implemented when they acquired the robotics company, Kiva. Walmart can significantly benefit from MFCs but also from Autonomous Mobile Robots (AMR) throughout its logistics operations in their Supercenters and distribution centers. Walmart should be one of the leading robotics companies in the world yet they are nowhere near this goal. This is a strategic misstep.

In addition to an MFC solution for fulfilling online groceries, Walmart would be wise to assess a hybrid solution that leverages MFCs centrally located among clusters of Walmart stores delivering to an automated three temperature zone, unattended curbside pickup system at each store. UPAS from White Systems or something similar. Curbside pickup is popular with Walmart’s customers and automating the process is worth exploring.

By far, I believe one of the biggest issues faced by Walmart is that they have low order density for their online grocery business. On average, grocery retailers lose up to $20.00 on every online order they fulfill, with the average being between $11.00 to $14.00 to fulfill and deliver one online grocery order. Adding online order volume does not reduce fulfillment costs. In other words, fulfilling one online order or 1,000 online orders costs the same per order.

Increasing density, however, has a tremendous impact on reducing costs. Density is the number of orders delivered to specific zip codes, cities or neighborhoods. Density allows Walmart to deliver more online orders consistently. Increased density eliminates the use of drivers in cars making a 1-to-1 delivery (one delivery to one customer) and instead, allows many orders to be delivered to many customers in a similar location. Using vans that can hold a large number of grocery orders scales last mile delivery costs across many orders thus reducing costs and increasing profitability.

An exercise I suggest Walmart undertake is analyzing the location of every online order they fulfill and deliver. Apply the Military Grid Reference System (MGRS) to calculate the number of consumers in each grid square that order groceries online from Walmart and/or shop at Walmart. This will provide Walmart with their percentage of customers by grid. A question I advise Walmart to ask is this: How can we increase the number of customers in every grid, i.e., every neighborhood and apartment complex?

Walmart can then design a marketing program to target and influence those consumers to become customers of Walmart; especially for groceries. If Walmart perfects this model, no retailer, including Amazon, can touch them.

Walmart must rethink their last mile delivery strategy. Multiple last mile delivery companies (Skipcart for example) have fired Walmart because they find operating as a last mile delivery carrier is fraught with complexity and little to no profitability. I remain on the record that Walmart has one of the worst last mile delivery strategies of any retailer I’ve assessed. Again, there is a a failure of leadership which has resulted in such a poor strategy.

Increasing order density will also allow Walmart to leverage their own associates or full-time drivers to deliver groceries profitably as vehicles will operate at full capacity. (Ocado uses a similar model and Louis Borders plans on implementing such a strategy at the fulfillment centers he opens and operates). If Sam Walton came back to life, I’m convinced he would fire every executive responsible for Walmart’s last mile delivery program. Walton would immediately see the value of Walmart associates or full-time Walmart drivers delivering groceries. Walton would insist that the drivers were trained to upsell to customers and establish relationships with each customer.

In the near future, Walmart can supplement their last mile delivery strategy by launching mobile retail vans and autonomous vehicles like those offered by Robomart.

There are many other things that I believe Walmart must do. I have outlined only a few suggestions in this article.

The time has come for Walmart to stop following and start leading. The object appearing larger in Walmart’s rearview mirror is Amazon and Amazon doesn’t take prisoners.