Walmart cuts drone delivery in three states amid high costs

Walmart is scaling back its ambitious drone delivery program by shutting down operations in Phoenix, Salt Lake City, and Tampa. The decision, driven by unsustainable costs, marks a notable retreat from the retailer’s 2022 expansion into large-scale drone delivery, which was touted as a revolutionary step for last-mile logistics in the US.

DroneUp, which operates as Walmart’s primary drone delivery partner, has announced the closure of 18 delivery hubs across these cities, resulting in the layoff of 70 employees — about 17% of its workforce. Despite initial enthusiasm, the company found that maintaining operations in these regions was not financially viable.

According to DroneUp CEO Tom Walker, the current cost to deliver a package by drone is around $30, far exceeding traditional ground delivery methods. The company’s goal is to reduce this cost to under $7, making it competitive and sustainable.

The closures will leave DroneUp operating at just 15 Walmart locations, with 11 in the Dallas-Fort Worth area, three near Walmart’s Bentonville, Arkansas headquarters, and one in Virginia Beach, Virginia.

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Walker explains that the services in Phoenix, Salt Lake City, and Tampa provided valuable insights into consumer demand but ultimately did not achieve the scale necessary for economic viability. “Now it’s time to focus on that scalable model,” Walker says, emphasizing the need for automation and higher payload capacity.

The Dallas-Fort Worth area, home to the largest concentration of DroneUp operations, is emerging as the epicenter of drone delivery innovation in the US. Earlier this year, Walmart announced plans to expand drone delivery to cover 1.8 million residents in the metro area. The company is also collaborating with other drone delivery providers, including Wing (backed by Alphabet), Zipline, and Flytrex to integrate drone delivery into its app, aiming to streamline the service for its customers.

Flytrex CEO and founder Yariv Bash tells DroneDJ, “The drone delivery industry is at a pivotal moment where the focus is shifting from regulatory approvals to achieving true commercial viability. Walmart’s decision to halt DroneUp services highlights the need for a robust system that both meets regulatory standards and delivers on the promise of cost-effective and scalable operations. You can’t deliver groceries in a Bentley — it’s simply too expensive. The key to the industry’s future success lies in creating solutions that are more affordable and efficient than existing alternatives.”

Despite the setbacks, both Walmart and DroneUp remain optimistic about the future of drone delivery. Walmart spokesperson Lindsey Coulter says, “We are excited about the momentum and positive customer response we’ve experienced around drone delivery.” She adds that by focusing on Dallas-Fort Worth, the company hopes to better understand customer preferences and refine the drone delivery model.

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