Costco, With an Eye on Amazon, Expands Home Delivery Service
October 06 2017 - 6:29AM
Dow Jones News
By Sarah Nassauer
Costco Wholesale Corp. is expanding its home delivery services
as food becomes an increasingly competitive front in the e-commerce
battle.
This week Costco started offering two-day delivery on
shelf-stable food from its own website and expanded a fresh-food
delivery partnership with Instacart, a startup that delivers
groceries from retailers in one day. Both services let Costco
members buy food online at lower prices than available under
previous options, said Richard Galanti, the company's chief
financial officer.
The moves are a departure for Costco. The company has been slow
to embrace online shopping as its members tend to spend more when
they visit its cavernous stores.
"At the end of the day we would love you to just come in and buy
and take it home," Mr. Galanti said. But, he added, "we would
rather lose it to ourselves" than have other online retailers grab
the business.
Costco's share price has fallen 7.2% since Amazon.com Inc.
announced it would buy Whole Foods in early June.
Investors have worried that Costco's core, high-income customers
overlap with Whole Foods' shopping base and could be picked off by
Amazon's efforts to lower prices.
Analyst and media reports of Whole Food's price drops are
overblown, said Mr. Galanti. "We [check prices at] Whole Foods
twice a week in many, many markets around the country and we're
kind of scratching our head," he said. Costco has seen no sign that
shoppers are defecting, he said.
In recent years, Costco's business has fared better than many
retailers, some of which are reporting shrinking sales and deep
losses. On Thursday, the company said sales in existing stores rose
6.1% in the latest quarter and 4.1% for the fiscal year ended Sept.
3.
Profit margins in the fourth quarter fell slightly as Costco
spent more to lower prices on some items and sales of low-margin
gas made up a higher percentage of its business, Mr. Galanti said.
Net income was $919 million in the period, which was a week longer
than the year-ago period, in which it earned $779 million. Sales
were $41.39 billion.
The new Costco.com delivery service, dubbed CostcoGrocery, will
offer free shipping on around 500 products for orders of at least
$75. Its Instacart partnership will sell around 1,700 grocery
products like eggs, meat and fruit, with free same-day delivery on
orders of at least $35.
Both Costco.com and Instacart previously sold some Costco
groceries, but only at higher prices. Prices under the new services
will still be higher than available in stores.
Grocers have long struggled to make food delivery profitable.
Recently retailers have expanded their efforts, aiming to
outmaneuver Amazon, which delivers groceries to most metro areas in
the U.S.
Earlier this week Wal-Mart Stores Inc. said it acquired Parcel
Inc., a small New York-based delivery startup that specializes in
fast home delivery. The retailer plans to use Parcel to deliver
groceries and other merchandise to New York City residents,
Wal-Mart said.
Write to Sarah Nassauer at sarah.nassauer@wsj.com
(END) Dow Jones Newswires
October 06, 2017 06:14 ET (10:14 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.
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