Costco Launches Delivery Services As Competition Heats Up

Costco Wholesale Corporation has announced a same-day delivery service as competition among retailers heighten. The same-day delivery service will be offered through a partnership with Instacart, a grocery delivery firm, for orders of items such as fresh foods.

Costco will also offer a two-day delivery service for dry goods available in continental U.S. only. Orders of amounts under $75 will be charged a delivery fee. Additionally items that will be listed for delivery will also come with higher prices compared to items meant for sale at the stores. The number of sundries and nonperishable foods that are available for this service are over 500.

Same-day delivery

The same-day delivery service will be available in most urban areas and customers will be allowed to pick a one-hour window when they want to their order to get to them. Orders of amounts under $35 will attract a delivery fee. The prices of goods meant for same-day delivery will also come at a higher price – around 15-17% more than those being sold in stores. There will also be an extra 10% service charge though shoppers can choose not to pay it.

According to Daniel Binder, an analyst at Jefferies, the new delivery initiatives will increase the retailer’s engagement with millennials as well as improve Costco’s competitive offering. This was echoed by other analysts.

Digital transformation

“We see this as a huge positive for Costco given the perception that Costco has been slow with its pace of digital transformation. However, we also see risk these initiatives will weigh on margins over time and may be viewed as defensive,” wrote Kelly Bania, an analyst at BMO Capital Markets Corp. analyst, in a client note.

According to the chief financial officer of Costco, Richard Galanti, the delivery services were launched last week. In a conference call with investors Galanti also said that the retailer will have to find a way of communicating to customers the low prices it offers for items being sold online.

Though they are low-margin items, groceries assisting in bringing shoppers into stores and this has seen big-box retailers such as Target and Walmart invest millions in this segment as a way of boosting traffic to their stores besides improving their online sales. The acquisition of Whole Foods Market by Amazon has increased competition and Kroger and Walmart were hit the hardest as they lost customers. Galanti however said the price cuts that Amazon had introduced at Whole Foods Market had not had an impact on Costco and had consequently not reduced the in-store prices.

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