Walmart Canada scraps online pickup fee

This Tuesday, May 30, 2017, photo shows a 24-hour grocery pickup location at a Walmart in Oklahoma City. (Sue Ogrocki/AP)

Walmart Canada is eliminating the pickup fee from its online grocery service as it braces for increasing competition in a business where profit margins are already razor thin.

The retail giant said Tuesday it is cancelling its $2.97 charge for customers who order groceries online and pick them up in stores.

While the fee was modest, the company's internal studies indicated it was a barrier preventing some people from using their online grocery pickup service, said Daryl Porter, vice-president of online grocery for Walmart Canada.

"Even though it's a small dollar amount, it means something," Porter said.

"We want to remove that fee and give people a better chance to try it."

Walmart Canada said that for competitive reasons, it won't say how much it stands to lose by scrapping the fee and how many customers use its online grocery pickup service.

The service launched in Ottawa in July 2015, about a year after Loblaw rolled out a similar program in the Toronto area.

Walmart Canada has since expanded it to the Greater Toronto Area, Calgary and Edmonton, and Porter said there are plans to bring it to a fifth market that will be unveiled in about a month.

Michael von Massow, an associate professor in food economics at the University of Guelph, said Canadians lag behind Americans when it comes to using online grocery pickup services, though they are catching up and it is a market with potential to grow.

He said key for retailers including Walmart is locking in first-time consumers because research shows they are unlikely to switch once they become accustomed to ordering online.

"If you can get their first order, you're more likely to get their second order," he said.

He said he doesn't believe Walmart's decision will hurt its bottom line, adding that the increased number of orders from new and existing customers will likely more than make up for any losses.

The Walmart announcement comes against the backdrop of Amazon's US$13.7-billion deal to buy Whole Foods, an acquisition that some industry observers say will upend the supermarket sector in North America.

"There is a lot of activity happening out there in the industry but this is something we wanted to do even before the Amazon announcement," Porter said.

Von Massow said online grocery delivery services have struggled to gain market share because people want to "squeeze that avocado" -- they don't want to order produce online.

He said he thinks Amazon and Walmart Canada may eventually adopt a "hybrid" shopping model where customers can order their packaged groceries online, pick them up, and buy fresh food such as fruit and vegetables in-store.

Walmart Canada introduced groceries in its stores in 2006 and they are now available in about three-quarters of its 411 stores.

Loblaw said Tuesday it offers its online pickup grocery service at 142 stores and there are plans to expand it. It charges a fee between $3 and $5 per order, depending on the time and day of pickup.