Walmart is scaling back its ambitious drone delivery program by closing operations in Phoenix, Salt Lake City and Tampa. The decision, cited as unsustainable costs, represents a notable retreat from the retailer’s planned 2022 expansion into large-scale drone delivery, which was touted as a revolutionary step for last-mile logistics in the U.S.

DroneUp, Walmart’s main drone delivery partner, has announced the closure of 18 delivery centers in these cities. This has led to the layoff of 70 employees – about 17% of the workforce. Despite initial enthusiasm, the company found that maintaining operations in these regions was not financially viable.

According to Tom Walker, CEO of DroneUp, the cost of delivering a package via drone is currently around $30, far exceeding the cost of ground delivery. The company’s goal is to reduce this cost to under $7, making the company competitive and sustainable.

Following the closures, DroneUp will only operate at 15 Walmart locations, including 11 in the Dallas-Fort Worth area, three near Walmart headquarters in Bentonville, Arkansas, and one in Virginia Beach, Virginia.

Walker explains that while the services in Phoenix, Salt Lake City and Tampa provided valuable insights into consumer demand, they ultimately did not reach the scale needed to be commercially viable. “Now is the time to focus on that scalable model,” Walker says, emphasizing the need for automation and increased payload capacity.

The Dallas-Fort Worth region, where most of DroneUp’s companies are based, is becoming the epicenter of innovative drone deliveries in the U.S. Earlier this year, Walmart announced plans to expand drone deliveries to 1.8 million residents in the metro area. The company is also working with other drone delivery services, including Wing (backed by Alphabet), Zipline and Flytrex, to integrate drone deliveries into its app to streamline the service for its customers.

Flytrex CEO and founder Yariv Bash tells DJI Mavic 2 Zoom“The drone delivery industry is at a pivotal moment where the focus is shifting from regulatory approvals to achieving true commercial viability. Walmart’s decision to discontinue DroneUp services underscores the need for a robust system that both meets regulatory standards and delivers on the promise of cost-effective and scalable operations. You can’t deliver groceries in a Bentley – it’s just too expensive. The key to the industry’s future success is creating solutions that are more affordable and efficient than existing alternatives.”

Despite the setbacks, Walmart and DroneUp remain optimistic about the future of drone deliveries. Walmart spokeswoman Lindsey Coulter says, “We are excited about the momentum and positive customer response we have seen with drone deliveries.” She adds that by focusing on Dallas-Fort Worth, the company hopes to better understand customer preferences and refine the drone delivery model.

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