US Markets
Wednesday, July 10th, 2024 1:05 pm EDT
Key Points
- Expansion of Automated Distribution Centers: Walmart is opening five new automated distribution centers for fresh food, each about 700,000 square feet, to improve efficiency and support its growing online grocery business.
- Increased Efficiency and Cost-Effectiveness: The automation in these centers will provide real-time inventory management, reduce the need for excess safety stock, and double the storage capacity and processing volume compared to traditional sites.
- Impact on Workforce and Spending: The automation will change workforce roles, requiring fewer manual laborers and more supervisors and truck drivers. Walmart expects to maintain or increase its overall workforce size but with different job functions. The company’s capital expenditures, including automation, are projected to be $22 billion for the year, significantly higher than previous years.
Walmart is set to open five automated distribution centers for fresh food across the United States to enhance efficiency and support its growing online grocery business. Each new facility, averaging 700,000 square feet, incorporates automation to handle perishable items like strawberries and frozen chicken nuggets for store sales or e-commerce orders. As the largest U.S. grocer, Walmart is updating its supply chain to cater to customers increasingly opting for parking lot pickups or home deliveries, which contributed to a 22% e-commerce growth in the latest quarter. The company has been automating various supply chain aspects, including centers for shelf-stable items and online order fulfillment, to drive profit growth faster than sales over the next five years.
Dave Guggina, Walmart’s executive vice president of supply chain, explained that these automated facilities provide real-time inventory insights and expedite grocery deliveries to stores. This precision reduces the need for “safety stock,” thus operating more cost-effectively. The high-tech facilities double the storage capacity and can process more than twice the volume of traditional sites, significantly enhancing operational density. Consequently, Walmart’s capital expenditures, including automation and store remodels, are projected to be 3% to 3.5% of net sales for the year, approximately $22 billion, compared to the historical $12 billion annual expenditure.
By early 2026, Walmart aims for about two-thirds of its stores to benefit from some form of automation, with roughly 55% of fulfillment center volume processed through automated systems. This shift could potentially lower unit cost averages by around 20%. Within these automated facilities, robotic systems can quickly retrieve items for restocking and assemble dense pallets for delivery, ensuring fragile items like eggs are safely placed on top. These customized pallets can cater to specific online grocery orders, with products stored in the back of the store to fulfill such orders exclusively.
The first of these five new automated distribution centers for fresh food has already been built in Shafter, California, with the second recently opened in Lancaster, Texas. Additional centers are planned for Wellford, South Carolina; Belvidere, Illinois; and Pilesgrove, New Jersey. Alongside these new constructions, Walmart is also expanding and automating four traditional fresh food distribution centers, adding about 500,000 square feet to each. These are located in Mankato, Minnesota; Mebane, North Carolina; Garrett, Indiana; and Shelbyville, Tennessee, with a legacy facility in Winter Haven, Florida, also undergoing retrofitting.
Automation will transform workforce roles within these facilities, potentially reducing the number of jobs while increasing productivity. Guggina noted that Walmart, currently employing around 1.6 million workers, anticipates maintaining or even increasing its overall workforce size, although the nature of the roles will evolve. There will be a shift from manual labor-intensive roles to supervisory positions, with a likely increase in demand for truck drivers over warehouse floor workers. Thus, Walmart’s push towards automation is set to enhance operational efficiency while reshaping its employment landscape.
For the full original article on CNBC, please click here: https://www.cnbc.com/2024/07/10/walmart-to-open-five-automated-distribution-centers.html
