Walmart to open five automated distribution centers

Walmart is the nation’s largest grocer, but it’s revamping its supply chain to meet customers who increasingly pick up orders in the parking lot or have groceries delivered to their doorsteps. In-store pickup and delivery helped fuel the company’s 22% growth in U.S. e-commerce in the latest quarter.

The retailer is automating supply chain facilities across the country, including distribution centers that handle shelf-stable products and fulfillment centers that help package 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 its profits faster than sales over the next five years.

In an interview with CNBC, Dave Guggin, executive vice president of Walmart’s supply chain, said the automated facilities give the company a more accurate picture of its inventory and allow for faster delivery of groceries to stores.

“We know what we have, how much of it, and where it is, all in near real time,” he said. “And we know that at a level of proficiency that is far superior to what we could achieve with manual processes or legacy software.”

This allows Walmart to operate more cost-effectively by better anticipating demand and reducing spending on “safety stock,” or extra products held in the warehouse or back of the store to avoid running out of stock altogether, he added.

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

Automation is driving higher spending at Walmart. The company said its capital spending this year will be between 3% and 3.5% of net sales, which would translate to about $22 billion based on the midpoint of its forecast. The total, which includes expanding automation and modernizing hundreds of stores, is higher than the $12 billion Walmart has historically spent annually on capital spending in recent years.

Walmart said it will have about two-thirds of its stores by early 2026 will be handled by some type of automation, with about 55% of fulfillment center volume expected to go through automated facilities. Average unit costs could improve by about 20% by then, the retailer said.

Inside the facilities, an automated storage and retrieval system can quickly grab the items a store needs to restock shelves and transport them to an area where they are stacked into a dense pallet ready for delivery to stores. Instead of relying on a worker to manually stack these items like a real Jenga puzzle, a robotic system helps push and stack them to get delicate items like eggs and peaches on top.

Guggina said automation could create personalized pallets for a store that contain only the specific products needed to fulfill online grocery orders. Those chilled or frozen items could be stored in the back of the store and used exclusively to fulfill those orders.

Guggina would not disclose how much each facility costs to build or how those costs compare to traditional distribution centers for perishable goods.

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

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

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

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

That will also be the case in automated grocery distribution centers, he said. Workers in the company’s traditional facilities operate like “industrial athletes,” lifting hundreds of boxes an hour and covering many miles each day. In the new facilities, he said, they are more like supervisors.