Dive Brief:

• Ride share companies Uber and Lyft will no longer be handling grocery deliveries for Walmart, according to Reuters. Uber, which made deliveries for the retailer in four markets, ended the deal as part of a pullback on its delivery services, while a Lyft pilot in Denver failed to gain traction, according to the news service.
• Walmart says grocery deliveries won’t be disrupted in the effected markets. A spokeswoman told Reuters that the news won’t impact Walmart’s mission to offer grocery delivery to 40% of U.S. consumers by the end of this year. Walmart also works with on-demand companies Postmates, DoorDash and Deliv.
• According to sources interviewed by Reuters, the end of the ride-sharing partnerships reflects the difficulties of shuttling both people and groceries. “They are two completely different business models,” an anonymous source told the news service.

Dive Insight:

Delivery through Uber and Lyft seemed promising to Walmart and its investors because of the large footprint both ride-share companies have, and because adding grocery trips seemed like a natural fit. The retailer could quickly scale up in target markets with two companies that already operated a large, experienced fleet of drivers.

But ferrying human cargo and groceries was not as efficient and cost effective as it seemed at first. In late March, Uber announced it was ending its Rush service, which included delivery of groceries along with flowers, office supplies and other on-demand goods. It was around that time, in fact, that the company decided it would end its partnership with Walmart — a decision it failed to adequately communicate to the retailer, which in mid-March announced Uber as one of its key delivery partners.

The move comes as Uber is reining in underperforming businesses under new CEO Dara Khosrowshahi, who wants to take the company public as soon as next year, according to The Wall Street Journal. Uber maintains its “Rush” service was a test, and plans to focus on Uber Eats, which offers delivery from restaurants.

Kroger has also partnered with Uber for delivery in several markets, and according to a company spokeswoman that deal remains intact for the time being.

"We have a relationship with Uber in a handful of markets, but we are always evaluating our service provider partnerships," Kristal Howard, Kroger's head of corporate communications, told Food Dive in an email.

Although this ends two once-promising deals, the news shouldn't throw off the retailer's grocery delivery expansion, which is set to reach 100 markets by the end of this year. The company recently inked deals with Postmates and DoorDash in Charlotte and Atlanta, and should be able to scale up with other on-demand companies in key markets.

But the news does highlight the continuing difficulties in cracking last-mile delivery. Every grocer faces the challenge of making delivery profitable, with mileage and labor cutting into earnings. But Walmart may face additional challenges due to the fact that many of its stores are located in rural areas. As sources interviewed by Reuters explain, delivery services often struggle to make money in less population-dense regions.

Walmart, as it does, has offloaded a lot of that risk onto its delivery partners. And those partners will no doubt be willing to grow with the retailer due to its size and sway. But as the Uber pullback shows, the deal ultimately needs to be sustainable for partner companies.

The news also underscored just how fluid the grocery delivery market is right now. Sprouts Farmers Market just ended its relationship with Amazon on same-day delivery, while Shipt continues to expand its service with new owner Target and other retailers. The company just announced its partnering with Bi-Lo in several southeastern cities, and with Dierberg's in the Midwest.

With online grocery shopping set to become a $100 billion business in as little as four years, both new and established competitors will be ready to take up the slack Uber and Lyft have left.