Walmart (NYSE: WMT) and its partner DroneUp are significantly reducing their drone delivery operations, discontinuing services in Phoenix, Salt Lake City, and Tampa. This decision comes after an ambitious expansion announced in 2022, which was touted as the first large-scale drone delivery operation in the United States.
As a result, 18 Walmart delivery hubs will be closed across these cities, leading to job losses for 70 DroneUp employees, or 17% of the company’s workforce. Drone delivery services will be limited to just 15 Walmart locations: 11 in Dallas, three near Walmart’s headquarters in Bentonville, Arkansas, and one in Virginia Beach, where DroneUp is based.
DroneUp CEO Tom Walker told Axios that while the services in the discontinued cities provided valuable insights into consumer demand, they were ultimately unsustainable at their current scale. The company is now shifting its focus to developing a more scalable model, with an emphasis on automation and improved drone capabilities.
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The primary challenge facing drone delivery is cost-effectiveness. Currently, it costs DroneUp about $30 to deliver a package by drone. The company aims to reduce this to less than $7 per delivery, making it competitive with ground-based delivery while offering significantly faster service.
As part of its strategy to achieve sustainability, DroneUp is introducing a new “ecosystem” for autonomous drone operations. This includes climate-controlled storage lockers for package handling and battery recharging, as well as more advanced drones capable of traveling at 60 mph with a 30-mile range and a 10-pound payload capacity.
Walmart remains optimistic about the future of drone delivery, citing positive customer responses. The retail giant is now concentrating its efforts on the Dallas-Fort Worth area, where it plans to expand drone delivery services to cover 1.8 million residents or about 75% of the local population. In this region, Walmart is also partnering with other drone delivery companies such as Alphabet-owned Wing and the startup Zipline.
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