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Walmart turns to gig drivers for same-day grocery deliveries

It is cheaper than hiring full-time employees, lowers retailer's liability risk from labour-related driver lawsuits

DoorDash driver Jeff Leonard waits to collect an order at a Walmart online grocery pick-up parking lot in Cumming, Georgia.

Alpharetta, Georgia

JEFF Leonard slides behind the wheel of his burgundy Hyundai Accord and heads to a nearby Walmart Inc store, where he picks up the package of groceries waiting for him.

Roughly an hour later, the 62-year-old delivers vegetables, flavoured water and cleaning supplies to a shopper's front door.

It is one of nearly 100 such Walmart deliveries for Mr Leonard since July, when he first signed up to courier for the world's largest retailer.

He is one of hundreds of local independent drivers for DoorDash, the San Francisco-based online delivery service that Walmart uses to handle same-day delivery of groceries to shoppers' homes outside of Atlanta.

Gig workers such as Mr Leonard come at a lower cost for Walmart than full-time employees, Reuters found.

Mr Leonard pays for his own fuel, car insurance and gets no health insurance, retirement plan or other employee benefits. He and other gig drivers in the area collect US$7 to US$10 per Walmart delivery. Walmart has deemed US$11 an hour as minimum wage for its own employees.

The world's largest retailer began bolstering its partnerships with third-party courier firms to reach consumers in 100 US cities last year to better compete with Inc. The move came as it ended initiatives to use Uber and Lyft drivers, and struggled with using Walmart's own employees, to deliver packages.

Walmart told Reuters it benefits from the speed as well as the driver contacts of its seven partner firms, such as DoorDash. The move allows same-day grocery delivery to 40 percent of households across the United States, without the burden of hiring employees.

The retailer is able to keep costs down by negotiating pre-determined delivery rates with the firms, namely by breaking down delivery costs by zones in cities, according to three sources with direct knowledge of the situation, who spoke to Reuters on condition of anonymity.

The amount that drivers are paid is determined largely by the distance from a store to the shopper's home or location. "That (payment) gets defined ahead of time and that is fixed," said a source, referring to the company's agreement with Walmart, which then charges the customer a delivery fee.

Walmart spokeswoman Molly Blakeman said speed is a big factor in Walmart's reliance on the delivery companies. "To develop that on our own in each market would take us much longer to roll out," she said.

Walmart's partnership approach to grocery delivery is in contrast to Amazon Flex, which taps freelance drivers directly as needed, and pays them US$18 or more per hour.

By working with partners who hire out drivers "on demand" as contractors who can then also earn money from other outlets, Walmart is also able to lower liability risk from labour-related driver lawsuits, which are growing in number around the US.

In a statement, DoorDash chief operating officer Christopher Payne said a majority of drivers earn over US$11 an hour while completing Walmart deliveries and a significant portion of the drivers earn over US$15 an hour. Reuters was not independently able to verify the higher end of the hourly pay scale.

Walmart partner Deliv paid drivers by the hour, sources said. Reuters reported that Deliv, one of Walmart's partners in Miami and San Jose, ended the relationship altogether.

The risk to Walmart's new strategy is driver loyalty. Garrick Clark, a 44-year-old driver making deliveries for Walmart in Alpharetta, said he would prefer dropping packages for Amazon over delivering groceries for Walmart because Amazon pays US$18 to US$24 an hour for similar deliveries.

A source with direct knowledge of why the relationship between Walmart and Deliv ended, said delivering large orders over long distances was a hurdle to the tie-up.

Walmart charges a US$7.99 to US$9.99 delivery fee on a minimum order size of US$30 for online grocery orders, and customers willing to pay for same-day delivery often do not live close to a Walmart store, the person said.

Further, many Walmart's stores are in low-income neighborhoods which generated fewer online grocery orders for Deliv's same-day delivery, two sources said.

"To get drivers to agree to US$7 or so to drive 24km to deliver 40 items was a big problem. Most drivers were like, 'We don't want to do Walmart anymore'," one of the sources said.

According to Spend Management Experts, Walmart would have to spend at least US$141.76 per employee, per day if it hired them to make deliveries for eight hours at US$11 an hour in Atlanta. The cost analysis, which the firm performed on behalf of Reuters in December, includes what Walmart would pay for fuel, car insurance and car maintenance. But it excludes the cost of employee benefits.

Mr Leonard, the driver in Alpharetta, said getting a guaranteed minimum wage from delivery companies for the hours he logs would be a big help. "But they don't, and that's the nature of the beast." REUTERS