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Wal-Mart’s push to branch out into home delivery of fresh-food e-commerce orders marks a new front in the intense grocery wars.

Glenn Lowson

The country's food fight is heating up as Wal-Mart Canada Corp. expands its grocery e-commerce into home deliveries.

The discount behemoth has started to test online food deliveries – including fresh fruits, vegetables and meat – to select condominium towers in downtown Toronto, with the pilot set to expand next month to more homes in that city's core.

In the current initiative, which began in the preholiday season, the retailer is using its own trucks to deliver groceries to customers' condos, Lee Tappenden, chief executive officer of Wal-Mart Canada, said in an interview. For the deliveries starting next month, Wal-Mart will team up with two Uber-style crowdsourcing firms that will have people pick up and deliver groceries that are packed by the retailer.

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"There's probably going to be a blend of both" crowdsourcing and Wal-Mart trucks in the retailer's ultimate home-delivery model, he said, adding: "It's been received very well."

Wal-Mart and other major grocers, including titan Loblaw Cos. Ltd., already have introduced a service that allows customers to order fresh and packaged fare online and pick up their orders at one of their chains' stores or other sites. But Wal-Mart's push to branch out into home delivery of fresh-food e-commerce orders marks a new front in the intense grocery wars.

Home delivery of fresh food has long been considered a challenge for retailers because of the heavy costs in ensuring the items don't go bad en route by keeping them in refrigerated trucks, requiring labour-intensive efforts to ship often low-cost but sometimes bulky items.

And while some regional players, such as Longo Brothers Fruit Markets Inc. and its Grocery Gateway in Ontario, have been delivering online fresh-food orders for years, the major grocers have generally shied away from widespread online deliveries.

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"Home delivery in e-commerce is something customers always want," said Suthamie Poologasingham, e-commerce senior adviser at retail consultancy J.C. Williams Group. "It comes back to the cost of delivery – in terms of making the costs viable, you really have to have a certain amount of volume."

A budding segment, online grocery shopping is estimated to make up between 1 and 4 per cent of the overall $140-billion of annual Canadian grocery sales, analysts say. But those sales are expected to rise at three to four times the rate of those in bricks-and-mortar stores, according to e-commerce researcher Profitero.

South of the border, the grocery industry "is the next big retail sector being reshaped by digital," a report last month by researcher Nielsen says. It forecast that online grocery shopping in the United States will jump to 20 per cent – or $100-billion (U.S.) – of annual sales by 2025. Analysts have estimated today's U.S. online-grocery sector to be closer to $48-billion.

In the debate over pickup-versus-delivery of online groceries, consultancy McKinsey & Co. has found deliveries generate lower profit margins: After variable costs such as marketing, margins are 10.7 per cent for home deliveries and 13.8 per cent for pickups. That's in a "best-case scenario" of densely populated areas in Europe, it said in a 2013 report. "The economics of pickup can be substantially more attractive."

In Canada, cyberheavyweight Amazon.com Inc. is expected to raise the ante further when it brings its home-delivered fresh-food offerings here eventually, analysts say.

Loblaw has its "click & collect" service at more than 100 stores, while Wal-Mart offers pickups in 47 stores in Ontario and, launching between this month and April, six in Alberta.

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Metro Inc., the country's third-largest grocer, launched online-grocery pickups in October in three Montreal stores, with plans to expand them to other outlets.

"It's a question of ironing out the details and scaling it up a bit, because clearly we're losing money at this rate for building this system for only three stores," Eric La Flèche, CEO of Metro, told analysts last month. "We will roll out more stores gradually, progressively over the course of this year in the Montreal area, and hopefully go beyond that after that."

Sobeys Inc., the country's second-largest grocer after Loblaw, runs its own delivery and pickup services at its IGA supermarkets in Quebec and Thrifty Foods in British Columbia. And Overwaitea Food Group of Langley, B.C., has pickup centres as well as home-delivery options for its Save-On-Foods e-commerce offerings.

Wal-Mart's Mr. Tappenden said its home-delivery test at three condominium towers in downtown Toronto is meeting the retailer's expectations with "very encouraging" results so far.

It entails same-day evening delivery on weekdays and delivery by noon the next day on weekends with a $10 (Canadian) fee and minimum of $50 order. In the crowdsourcing pilot, Wal-Mart staff will pick and pack the groceries and the partner firms will fetch and deliver them.

Mudit Rawat, CEO of Urbery.com, a crowdsourcing grocery-delivery firm (which isn't working with Wal-Mart), said it's an efficient way to get groceries to customers' homes. His firm also does the shopping. The challenge for him is finding part-time workers who are both good shoppers and drivers to select and deliver the food, he said. "You're allowing somebody to pick your avocados or your produce. Not everybody can do that."

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