Costco Steps up Grocery Battle With New Delivery Services

By Reuters
October 6, 2017Businessshare
Costco Steps up Grocery Battle With New Delivery Services
In this file photo, Costco Wholesale retail club is photographed in Austin, Texas, on Dec. 12, 2016. (Reuters/Mohammad Khursheed/File Photo)

Costco Wholesale Corp has rolled out two new grocery delivery services this week, a new step in its efforts to fight growing competition from and Wal-Mart Stores Inc.

Costco Chief Financial Officer Richard Galanti said in the company’s post-results call that the membership-based chain had started offering two-day delivery of dry groceries as well as a same-day delivery service for groceries including fresh foods.

The two-day delivery service would be free for online orders over $75 across the United States, while the same-day service—offered through its partner Instacart—is available at 376 U.S. stores.

Competition among U.S. grocery retailers has been tightening, particularly since Amazon bought Whole Foods and reduced prices at the upmarket grocer in August.

Wal-Mart and Kroger Co, the leading U.S. grocery retailers, have lost the most customers to Whole Foods due to the price cuts, a study conducted by a data analytics firm showed this week.

Galanti said that Costco had not seen any impact from Whole Foods’ price cuts.

“(Costco’s) new online delivery initiatives improve its competitive offering and could drive increased engagement with millennials,” Jefferies analyst Daniel Binder wrote in a note.

“Provided they don’t simply cannibalize store sales, the stronger omni-channel effort could prove accretive to sales and EBIT dollars,” he added.

Costco shares were down 2.7 percent at $162.55 in premarket trading on Friday, as a fall in its fourth-quarter gross margins fueled concerns of an intensifying grocery price war.


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