Walmart’s Jet to cease its New York City fresh grocery business

Walmart Inc.’s Jet subsidiary is ending its fresh-food delivery business just a year after introducing the service in New York City, another sign that the urban-focused site is scaling back.

The retailer will close a warehouse in the Bronx it was using to prepare orders and also let some drivers go, resulting in the loss of between 200 and 300 jobs, according to a person familiar with the decision. Jet -- which will continue to sell dry groceries like cereal and other general merchandise -- will inform customers of the news Friday and fulfill any existing orders already placed.

Since its launch last fall, Jet’s fresh-food service has struggled, according to three people familiar with the business. The company has resorted to raising prices to offset the hefty costs of fulfilling orders in the nation’s biggest city. Key executives left, and in recent months items like avocados and strawberries have been out of stock.

“We learned a lot by testing Jet fresh grocery delivery in New York City,” Walmart said in an emailed statement. “We’ll continue to test bold concepts that can offer convenience to customers.”

The move is the latest example of the declining importance of Jet, a business Walmart paid $3.3 billion to acquire in 2016 to reach urban millennials and gain the services of co-founder Marc Lore, who has taken over Walmart’s U.S. e-commerce operations. The company’s online revenue has increased -- but most of the unit’s success has come from its popular curbside grocery pickup service, which is cheaper to operate than home delivery.

Jet’s customer traffic, sales and overall relevance inside Walmart’s sprawling retail empire, meanwhile, have dwindled. Its staff was fully integrated into Walmart over the summer and the parent is losing patience with some of the expensive online ventures that generate buzz but crimp profits. This prompted Walmart to sell women’s clothing site ModCloth and explore a spinoff of shopping concierge service JetBlack.

Jet debuted what it dubbed its “City Grocery Experience” last September, opening a 200,000-square-foot distribution center in the Bronx, hiring executives from companies like PepsiCo Inc. and splashing ads over New York City buses and subway stations. Jet hoped to lure New Yorkers away from established online-grocery players like Fresh Direct, Ahold Delhaize’s Peapod and Amazon.com Inc., in part by offering upscale local brands such as Orwashers breads. Jet planned to expand the service to other cities.

“It’s the next generation of shopping for city dwellers,” Lore said at the time. That same month Jet rented out a five-floor, 10,000-square-foot Greenwich Village townhouse for a party to celebrate its new direction.

But the service stumbled from the start. The Bronx warehouse opened before it was fully ready, according to one of the people, and workers there had to resort to using portable space heaters to keep the facility warm.

Walmart said in an email that it’s common for facilities like the warehouse to open in phases and that it was in “lawful occupancy of the warehouse, and we worked with established protocols to ensure associate safety.”

At first, Jet’s prices were slightly lower than its online rivals on a typical basket of goods, according to a November 2018 analysis. But over time, Jet had to boost prices as it was losing about $20 on every order, said one person, who asked not to be identified since Walmart doesn’t disclose Jet’s results.

Jet hiked the fee for deliveries scheduled for a three-hour window to $9.99, up from $5.95 when the service debuted.

The site has also lacked inventory. In late August, out-of-stock items included bananas, cantaloupe, iceberg lettuce, yellow and red onions, boneless chicken breasts, asparagus, ripe large avocados, red and green seedless grapes, mandarin oranges, clementines, strawberries, raspberries and blueberries.

David Bishop, a partner at retail sales and marketing firm Brick Meets Click, said the missing items were “alarming” as fresh produce is such an important category for grocers, and substitutes aren’t often available. “If you can’t get bananas right, that’s like not being able to keep milk refrigerated,” he said.

Orwashers, the Manhattan baker founded in 1916 that supplies Jet with sourdough and New York seeded rye loaves, has reduced its shipments to Jet by about half, owner Keith Cohen said.

Walmart’s success with its own online grocery service -- which now includes more than 3,000 U.S. stores with curbside pickup and another 1,400 offering home delivery -- made Jet’s foray into fresh food much less vital. Jet employees who lose their jobs will get 90 days of pay. Walmart has no current plans to offer its primary fresh-food delivery service to Manhattan customers, as those orders are picked in stores and it has no locations in the five boroughs of the city.

“We recognized the important role our stores play in providing an efficient way to offer groceries to customers,” Walmart said. “We will focus our grocery pickup and delivery in markets where we have this incredible opportunity.”

Bloomberg News