U.S. Markets closed

Wal-Mart expands grocery pickup in battle with Amazon

A Wal-Mart Stores Inc company distribution center in Bentonville, Arkansas June 6, 2013. REUTERS/Rick Wilking

(Reuters) - Wal-Mart Stores Inc is expanding free grocery pickup service to several markets in the U.S. as it seeks to capitalize on its network of physical stores amid growing competition with Amazon.com and others investing in home delivery.

The world's largest retailer said on Tuesday that it would start offering curbside pickup for groceries ordered online in eight new markets this month - including Atlanta and Salt Lake City - with more to be added in the coming weeks.

Wal-Mart has been testing online grocery delivery services in two markets and pickup in the five markets of Denver, Phoenix, San Jose, California, Bentonville, Arkansas, and Huntsville, Alabama.

Tuesday's announcement solidifies a strategy of playing to its bricks-and-mortar footprint, with an estimated 70 percent of the U.S. population living within five miles of one of its 4,600 stores.

"We are not walking away from delivery," said Michael Bender, Chief Operating Officer of global e-commerce at Wal-Mart. "But right now the focus for us is pickup, driven largely by what our customers are telling us."

The move comes as rivals attempt to find the right business model for tapping demand for pickup and delivery services.

Target Corp this month partnered with Instacart Inc to deliver groceries for $3.99 per order in a pilot offering in Minneapolis. Amazon.com Inc is testing delivery in Seattle, New York, Philadelphia and California, for a $299 annual fee.

Bender said Wal-Mart is targeting pickup in part because it allows customers to pinpoint a pickup time, rather than having to be at home at a set delivery time of fresh items. He cited a busy mother with children as an example of the type of customer that would benefit from the service.

Shoppers can choose from about 30,000 items, roughly the same assortment as in stores. After ordering and paying online, customers drive to the outlet at a designated time and workers load items into their cars. Fayetteville and Charlotte, North Carolina; Ogden, Utah; Nashville, Tennessee; Tucson, Arizona; and Colorado Springs, Colorado are the other new markets for the service.

Wal-Mart will add a new role of "personal shopper" to retrieve and store the items. In some cases, that will entail promoting workers within a store, but overall it expected to add some headcount related to the service, Bender said.

Neil Stern, senior partner at retail consultancy McMillan-Doolittle, said investing in pick-up makes sense from a cost perspective.

"The economics of pick-up are much better for a retailer. Delivering to the home remains costly, even as services like Instacart and Shipt attempt to reinvent the model," Stern said.

(Reporting by Nathan Layne in Chicago and Sruthi Ramakrishnan in Bengaluru; Editing by Savio D'Souza and Alan Crosby)