Scoop: Walmart grounds delivery drones in three states to focus on Dallas

Driving the news: DroneUp tells Axios it is closing 18 Walmart delivery hubs in Phoenix, Salt Lake City and Tampa.

• The three cities were part of a splashy rollout in 2022 that was described as the first large-scale drone delivery operation in the U.S.
• Seventy employees, or about 17% of DroneUp's staff, are losing their jobs in those cities.
• The reduction will cut DroneUp's delivery service to 15 Walmart locations: 11 in Dallas, 3 near Walmart's Bentonville, Ark., headquarters and one in Virginia Beach, where DroneUp is based.

Between the lines: DroneUp CEO Tom Walker tells Axios the services in Phoenix, Salt Lake City and Tampa provided valuable lessons about consumer demand but were too small to be sustainable.

• "We're really focusing on automation, and a drone with higher payload capacity and longer range," he said. "Now it's time to focus on that scalable model."
• Earlier this year, DroneUp, which is partially owned by Walmart, unveiled a proprietary autonomous drone "ecosystem" that Walker says will revolutionize last-mile logistics.

Zoom in: It includes an automated, climate-controlled storage locker where drones can pick up and drop off packages and automatically recharge their batteries between deliveries.

• The drones fly autonomously, monitored by a human operator in a central operations center.
• DroneUp is also introducing a more advanced drone that travels 60 mph, has a 30-mile range, and uses a claw-like grabber to lift packages up to 10 pounds and store them safely inside its belly.

By the numbers: Drone delivery today isn't sustainable, Walker tells Axios.

• It costs the company about $30 to deliver a package by drone, he says. The goal is to get that cost below $7, which is close to ground-based delivery, but much faster.

• "If we achieve the delivery cost point that we're targeting, then it will no longer be something that people want, it'll be something that they demand," Walker said.

The big picture: Walmart earlier this year announced plans to expand drone delivery to 1.8 million residents in the Dallas area, covering about 75% of the population.

• It's partnering with Google-backed Wing and Zipline in addition to DroneUp, and is integrating the option for drone delivery into the Walmart app.

What they're saying: "We are excited about the momentum and positive customer response we've experienced around drone delivery," Walmart said in a statement to Axios.

• "This service will continue to evolve as we learn more about customer preferences and drone capabilities.
• "Our drone delivery program is still a pilot and by focusing our efforts in Dallas-Fort Worth, we can learn more about the potential to scale this innovative delivery option for Walmart's customers."

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