Walmart to open five automated distribution centers

Automated distribution centers for Walmart's grocery business.

Courtesy: Walmart

Walmart said Wednesday it will open five automated fresh food distribution centers across the country as the retailer seeks efficiency and grows its online grocery business.

The discount chain's new facility has an average area of ​​about 65,000 square meters. The refrigerated and frozen areas feature an automated system that stores and retrieves perishable products, such as strawberries and frozen chicken nuggets, which are then sold in stores or added to customers' e-commerce orders.

Walmart is the nation’s largest grocery chain, but it’s modernizing its supply chain to keep up with customers who are increasingly choosing to pick up their orders in the parking lot or have groceries delivered to their doors. In-store pickup and delivery drove 22% of the company’s U.S. e-commerce gains in its most recent quarter.

The retailer has been automating supply chain facilities across the country, including distribution centers that handle nonperishable items and fulfillment centers that help pack and ship online orders. Automation, along with higher-margin businesses like advertising, is a key reason CEO Doug McMillon said in April 2023 that Walmart would grow profits faster than sales over the next five years.

In an interview with CNBC, Dave Guggina, Walmart's executive vice president of supply chain, said automated facilities give the company a more accurate picture of its inventory and allow it to get food to stores faster.

“We know what we have, how much of it, and where it is, all in near real time,” he said. “And we know it at a level of proficiency that is significantly better than we've been able to achieve with manual processes or traditional software.”

That allows Walmart to operate more profitably by better predicting demand and reducing money spent on “safety stock,” extra product kept in a warehouse or the back of the store to avoid running out of stock entirely, he said.

High-tech facilities also allow for greater density. Each distribution center has twice the storage capacity and can process more than twice the volume of a traditional site, Guggina said.

Automation is contributing to higher spending at Walmart. The company has said its capital expenditures for the year will be 3% to 3.5% of net sales, which would translate to about $22 billion at the midpoint of its forecast. The total, which includes expanded automation and hundreds of store remodels, is more than the $12 billion Walmart has historically spent on capital expenditures annually in recent years.

Walmart has said that by early 2026, about two-thirds of its stores will They will be serviced by some form of automation, and about 55% of distribution center volume will move through automated facilities. Average unit costs could improve by about 20% by that time, the retailer said.

What is an automated installation?

Inside the facility, the automated storage and retrieval system can quickly grab the items a store needs to replenish its shelves and transport them to an area where they are assembled into a dense pallet that is ready to be delivered to stores. Instead of relying on a worker to manually stack those items into a cube like a real-life Jenga puzzle, a robotic system helps push and stack them to place fragile items like eggs and peaches on top.

Guggina said automation can create custom pallets for a store that include only the specific items needed to fulfill online grocery orders. Those refrigerated or frozen products could be kept in the back of the store and used exclusively to fill those orders.

Automated distribution centers for Walmart's grocery business.

Courtesy: Walmart

Guggina declined to say how much each facility costs to build and how it compares to traditional distribution centers for perishable goods.

Walmart already has built and tested the first of five automated fresh food distribution centers in Shafter, California. It recently opened the second in Lancaster, Texas, near Dallas. It plans to open the other three in Wellford, South Carolina; Belvidere, Illinois; and Pilesgrove, New Jersey.

In addition to new construction, Walmart is expanding four of its traditional fresh food distribution centers to include automation. It will add about half a million square feet to each of the facilities in Mankato, Minnesota; Mebane, North Carolina; Garrett, Indiana; and Shelbyville, Tennessee. It is also modernizing an aging facility in Winter Haven, Florida.

Automation will bring changes for workers and could reduce jobs at some facilities. Guggina said Walmart, which is the nation’s largest private employer with about 1.6 million workers, expects to have as many employees overall as it has now. or more, in the coming years.

But he added that Walmart hopes to increase productivity without hiring at the same rate as in the past. The jobs it needs will also change, he said. For example, it may need fewer people in the warehouse and more people to drive trucks in its fleet.

The same will be true at the company's automated grocery distribution centers, he said. Workers at the company's traditional facilities act as “industrial athletes,” lifting hundreds of boxes an hour and walking miles each day. At the new facilities, he said, they play the role of supervisors.

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