Can Same-Day Delivery Help Costco?

Bulk good retailer Costco posted excellent earnings that crushed analyst’s expectations, last week, but that hasn’t stopped share price from falling 6 percent towards the end of the week. The decline comes as investors are concerned over a pricing war across the [grocery] industry, at a time when more companies are making headway to merge traditional retail and tech. For one, online retailer Amazon has just completed its recent $13.6 billion purchase of Whole Foods Market, which is an attempt to compete with the world’s largest grocer: Walmart.

The Amazon purchase is particularly terrifying to the traditional grocery paradigm as the online retailer will now be able to use every Whole Foods stores as a physical Amazon location. Furthermore, the e-commerce giant is also pushing for lower prices at the notorious “Whole Paycheck” grocer, making whole foods, natural foods, and health supplement/products more affordable and more accessible for everyone.

Now, the appeal of Costco—to the consumer—is that you can save money by purchasing things in bulk. This comes in handy for mid-size (to larger) families. But the company has also been pretty successful in encouraging impulse buys, even at their larger (bulk) price points. Of course, impulse buys only work if people are roaming the aisles looking for deals (and trying food samples, for example). If more people are shopping at Amazon, for one, they won’t be pushing those oversized carts down the wide warehouse rows.

With that, Costco’s share prices fell 6 percent at the end of last week. And, with that, Costco has announced same-day delivery options (which are already available with Amazon and Walmart.com).

According to Wolfe Research analyst Scott Mushkin, “The concern generally has been: If they are successful at delivery, does that take away business from the club? The magic of Costco has always been its merchandising acumen: You go in to pick up Tide or toilet paper, and you walk out with Henckels knives.”

Costco will lose more of these opportunities if more and more customers head to the internet. More importantly, though, it seems there is a bit of an overlap between Costco customers and Amazon Prime members; and since these annual memberships cost $60 and $99 (with free shipping) respectively, there is great risk that shoppers will drop one or the other.

Still, Mushkin warns that these concerns could be quite overblown. He comments, “Investors have become worrywarts when it comes to Costco. But look at their numbers: great traffic, huge sales growth. These are big numbers for a big company.

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