US Insights

Breaking Down Costco's Grocery Delivery Service

Tim Campbell

Analyst

Retail 10.11.2017 / 11:00

CostcoMoncton

Costco is responding to the rising threat from Amazon.

Costco recently unveiled or expanded upon two grocery delivery services designed to boost its value proposition with those shoppers looking for a convenient trip. These services reveal Costco’s thinking and relative competitive position against the rest of the marketplace. Here are our top takeaways.

Costco understands it must adapt to face Amazon

Costco is notoriously cautious about its online advances. Seemingly unworried by Amazon’s relentless advance, the club has honed its brick & mortar strategy and refused to launch a Club Pickup service while its eCommerce site remained years behind competitors. Yet the recent launch of its new grocery delivery service is not the only signal that Costco is at last responding to Amazon’s warpath.

In addition to these services, Costco.com is in the midst of increasing its assortment, improving search navigability, and achieving better delivery times all while keeping prices low. Ultimately, Costco knows that every dollar that moves online from in-club means less money for the business. But As Richard Galanti stated during last week’s earnings call regarding in-club sales, “If we're going to lose it…we should lose it to ourselves.”

Costco Delivery

Costco is keeping its options open

Historically, Costco has eschewed developing its own online platforms in favor of partnering with third parties such as Instacart, Shipt, Google Express, and even Boxed Wholesale. Though Costco Grocery represents an understanding that the club must own its own digital strategy, it is not pulling back on its external partnerships. Costco.com prominently links to a grocery page which adjacently displays both Costco Grocery and Instacart as delivery options, one optimized for convenience and the other for the lowest possible price. Costco is purposefully offering its shoppers multiple options in order to lose the fewest amount of trips to competitors. Expect more experimentation with new and existing platforms as Costco is likely to pursue whatever platforms resonates the most with its members.

Costco can be well-positioned to succeed but it must continue to change

Costco’s slow and steady approach to eCommerce has meant that its traditional value proposition remains strong even within its online programs. The club retailer continues to leverage its negotiating skills, scale, and operational efficiency to offer some of the lowest prices in the eCommerce landscape. Costco Grocery in particular has rolled out with price reductions on a number of its offered items. Shoppers do not pay extra either in shipping fees or in base item price for the convenience of two day delivery. With further backend and logistical investments, Costco can be expected to cut prices where possible and keep an eye on its competition. At the same time, price is rarely the only factor shoppers consider when shopping online. Costco would do well to find ways of replicating its famed brick & mortar treasure hunt experience online and maximizing seamless online shopping as much as possible.

Source: Kantar Retail

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