Costco Expands Grocery Delivery

Despite an admitted resistance to take its business online, Costco is trudging forward into the e-commerce realm by launching its own grocery delivery option.Dubbed CostcoGrocery, the service offers two-day delivery on approximately 500 nonperishable food items and other packaged goods available on costco.com for a $3 delivery fee. Shipping is waived for orders of $75 or more.Costco chief financial officer Richard Galanti said in a recent earnings call that the new service would offer a “very competitive pricing and value proposition," but did not offer specifics.The retailer previously offered same-day grocery delivery for shoppers in select markets via third-party services Instacart and Shipt. These options will remain in place; Instacart now also is powering a same-day delivery option directly through costco.com.Club members in eligible Instacart delivery zones can choose from nearly 2,000 dry and fresh food items, which are priced 15% to 17% higher than in Costco's warehouses. A 10% service fee at checkout also applies. The retailer will continue to waive the delivery fee on orders over $35. Nonmembers can also make purchases via Instacart's mobile application or website, albeit with higher markups. On costco.com, a “grocery tab” now links to a page explaining both the CostcoGrocery and Instacart delivery options. The former is billed as the “most economical option” while Instacart is the “fastest.” Shoppers can click on either option to view eligible categories and add items to their cart.However, in-store promotion for Instacart or Shipt has been nonexistent, and it’s unclear whether the retailer will market CostcoGrocery to members in stores. It is potentially a move meant to keep its e-commerce offerings from cannibalizing club sales (a worry that some investors share).Costco has been notoriously reluctant to embrace online shopping, particularly for the grocery category, due to the costs of shipping bulk products and because it prefers shoppers to roam its stores and build larger baskets in what it calls a “treasure hunt.”Galanti has repeatedly made statements about the retailer’s desire to keep shoppers in stores. Although Costco is still experiencing strong sales growth with this brick-and-mortar focus, analysts have criticized Costco’s lackluster e-commerce efforts, and perhaps for good reason.According to data from Minneapolis-based market research firm Magid, Costco shoppers are more digitally focused than those at Walmart or Kroger, with 41% having purchased groceries online. For Costco’s key segment — 27-37 year olds with families — the percentage is even higher, at 43%. In addition, a significant portion of Costco's members also are Amazon Prime members."Costco has done a good job of providing an experience that can't be replicated," Magid vice president of retail Matt Sargent told the Institute. "But that will be pressured in the future."Amazon, as well as other retailers across channels who are beefing up their e-commerce efforts, could easily lure shoppers looking for an easier "fill in" trip for essentials. CostcoGrocery appears to be addressing this threat, although it still focuses rewards on larger baskets. Sargent added that concerns about the service reducing in-store traffic or sales were unrealistic."Costco's in-store sales will probably remain stable, but online, it will bring in a new customer that hadn't ever considered [the retailer] before," Sargent said. "It's changing people's understanding of what Costco is."For more information on the retailer's recent e-commerce enhancements, click here.

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