The economics of Walmart's delivery policy

We order a lot of stuff delivered from Walmart; they have free delivery with a $35 minimum order. Walmart seems to have private freelancers doing the deliveries in their own vehicles (or sometimes in rented U-Haul or Ryder small trucks), and they presumably deliver things from the local store, which gives them an edge over an outfit like Amazon which uses professional deliveries from fewer and more distantly located warehouses.

But what’s striking is that Walmart frequently sends items from the same order - many of which are very cheap - in separate deliveries, which seems completely uneconomical and undercuts the whole point of the $35 minimum. Just a half hour ago, a woman pulled up and dropped off a single package of plastic food (“saran”) wrap, costing probably a couple of dollars. Hard to see how the profit on that sale could come anywhere near the cost of having this woman deliver it. And this is not at all uncommon.

Knowing what I know about how Walmart works, the delivery people are competing against each other for their business and the cost to deliver a package is incredibly low. Walmart is very profitable and deals in volume. They don’t have to make much on each sale to justify moving product that would otherwise sit on their shelves. Trust me, if Walmart wasn’t making money doing it, or if it wasn’t a strategy to destroy it’s competition, it wouldn’t do it.

One thing to realize is that it doesn’t matter that much if Walmart makes money on every delivery, as long as they make money on the average delivery over the long term.

I’m sure they did lose money on having someone deliver a single box of saran wrap examined in isolation, but that doesn’t matter much.

There are a lot of reasons why you might be seeing a more of the unprofitable deliveries. Maybe you order a weird assortment of things that their warehouses don’t stock together. Maybe the store near you has some extra slack in employees that they’re paying anyway, so might as well have them go do some deliveries. Maybe they’re still working out the kinks in their home delivery logistics chain and expect to be profitable in your area two years from now, and the current deliveries are taking a loss to ensure that you and others like you don’t get used to ordering things from Amazon.

The cost of delivery depends heavily on how dense your network is, delivering 20 packages to a single street doesn’t cost that much more than delivering 1 package. But you only achieve density with low prices and convenience. So every successful delivery network has to bootstrap itself by burning an insane amount of money on deliveries that don’t make sense to begin with to get people into the habit of regularly receiving deliveries from the network. If you fail to reach the desired level of density, then you’ve burned an absolutely astounding amount of money and are responsible for a massive business failure. But if you succeed, then you have a massive defensible moat since anyone hoping to compete with you also has to torch a large amount of money on fire first.

@Shalmanese nailed it. The actual cost to deliver the OP’s Saran wrap is real close to zero … provided the truck was going to be driving down that street that day dropping stuff off at every other house anyway.

To be sure if the driver had to walk the store aisles, pick the saran wrap off the shelf, check out somehow, carry it to their truck, drive to the OP’s house, drop off the wrap, take their delivery confirmation photo, drive back to the store and lather rinse repeat for the next customer then … well … that economic model can’t possibly succeed.

So that’s not what Wal*Mart is doing.

Outfits like Instacart & Shipt are doing that. And charge roughly 20% of the base price of the same in-person order to do it. Meanwhile they have to try like hell to disguise that cost because their customers wouldn’t pay it if they recognized how much it really is.

Consider that setting aside Congress’ insane demands about retirement plan funding, the USPS is a profitable enterprise charging ~50 cents to carry small items between any two points in the USA. So doing double the work of Wal*Mart; both picking up and delivering.

They actually do “make it up on the volume” since most of the high cost steps in the process are done in batches of hundreds or tens of thousands of units. Properly amortized across a big volume that stuff gets real cheap.

I thought I heard that Walmart was having store employees make deliveries on their way home.

I don’t know how it works in the US, but in the UK, delivering parcels would require extra insurance.

I fell foul of this many years ago: One of my staff had a motorbike and I asked him to drop off some parcels in the city centre on his way home. This became a regular thing and I just paid him an hour’s overtime as compensation.

Then he had an accident. Fortunately, he wasn’t hurt, but the police were involved and he was told that his insurance was invalid because he wasn’t covered for ‘business use’. He was fined and got points on his licence and that was the end of that arrangement - I could pay the fine for him but could do nothing for the points.

Same in the States.

An issue which has caught many a Uber/Lyft driver short. Whether due to ignorance or deliberate cheating.

And also restaurants who were bitching about Grub Hub and Uber Eats. Using their own employees to do delivery but not making sure they even had a drivers license, much less proper insurance.

I placed a Walmart order today at 3pm. Expected delivery was listed as Tuesday/Wednesday. I received an email at 3:05 stating that my items are in stock at my local store, and will delivered by the end of the day (today)! Crazy.

that had to be an oops somewhere because you have to have an order of at least 35 dollars to be able to get it delivered by Walmart its self

Now instacart will deliver a small order like that for a "small bag " fee

even if walmart didn’t have the 35 dollar rule it would still cost about 10 bucks

It was $46

Yes, Uber/Lyft does very clearly lets the drivers know what insurance they need. My daughter drove for both for awhile. I helped her make sure she understood how to arrange it properly. She had to also get collision on her car in order to get business coverage, which made it even more expensive. I would guess that Uber/Lyft drivers that don’t have proper coverage do it either by choice or by not understanding. I have no idea about the other companies such as Instacart, though.

Pizza places are notorious for not telling delivery drivers who use their own vehicles this. Probably other restaurants, as well.

Uber certainly didn’t tell their drivers in the beginning either. Pretty quickly it became enough of a cause celebre that they had to first tell them to, and later (IIRC) demand drivers provide Uber proof of their business insurance, at least to start.

From Uber’s POV, any requirement they put on their drivers moves them one notch closer to having the government declare those drivers to be employees or contractors working for Uber, not total free-lancers using Uber’s carefully oh-so-neutral marketplace webapp to match willing “ridesharing” drivers with willing “ridesharing” riders.

That fig leaf didn’t last long, but Uber tried real hard to hide behind it as long as possible.


Back in the real world, the truck (or car, in the particular case at hand) is not “going to be driving down that street that day dropping stuff off at every other house anyway”.

I would estimate that each additional stop adds at least 5 minutes - and probably double that - when including driving from Point A to Point B, stopping the car, getting out to deliver the package at the door, and so on. And that’s all besides for getting the stuff from the store, checking it out, driving to the general area etc.

I suspect the purpose of the free shipping is primarily to get people to order more, not because shipping costs are lower per item in bulk. If you know there’s a point beyond which you get free shipping, many if not most people will go ahead and buy at least that much, even if they weren’t originally planning to do so.

For items from other sellers, it wouldn’t surprise me if the delivery costs are already baked in. Only the stuff also available in-store would need to worry about keeping the pricing consistent.

I know I’ve done that with Amazon’s $25 minimum for free shipping. I’ll find something I want or need for ten or twenty bucks and then hunt around for something I need much less just to hit the minimum. There are even websites that will identify items you can add to your order just to hit the minimum amount. Kind of silly, I know, as I have stuff purchased really only for that reason. Sometimes it’s better just to pay for shipping.

In my pre-prime days, I used to keep a few non-urgent items in my cart that I could add to an order to get above the free shipping minimum.

This. The “wish list” was really the “order top up to $35 for free shipping” list.