Costco Ramping Up Amazon Rivalry With New Push Into Grocery Delivery

Until recently, Costco didn’t have to worry too much about Amazon, but then the online retail giant began to figure out how to sell and ship the fresh groceries and pantry items that make up Costco’s core business. In an attempt to keep itself from going the way of so many other bricks-and-mortar stores, the warehouse club is grabbing a jumbo-size battle hammer and jumping into the grocery delivery fray.

Costco has been able to rely on the fact that its members couldn’t easily buy pallets of paper towels, bulk packs of steak, and a satchel of onions from Amazon — or if they could, these things would be eventually delivered after a several day wait, and often at a higher price than what the customer would pay at Costco.

But as Amazon has expanded both its Prime Pantry and Amazon Fresh services, its prices have improved, and the recent acquisition of Whole Foods is only likely to aid in the growth of Amazon’s food delivery operations — not only catering to those of us who like to grocery shop from home, but possibly luring away some Costco customers.

That’s why Costco is rolling out two new grocery delivery services: A two-day offering and a same-day option.

What’s the difference?

In both situations, members will earn the same rewards they can get shopping in stores. However, what you can buy and the fees you pay vary.

CostcoGrocery Two-day: Items are limited to dry goods and non-perishable items. Delivery is free for orders of at least $75, but there are no weekend deliveries (and no deliveries in Alaska, Hawaii or Puerto Rico).

Costco Wholesale Same-day: In addition to non-perishables, members can currently get fresh food like fruits and vegetables from 376 of Costco’s U.S. stores, with plans for the company to add more locations to that list next year.

There’s a 10% service fee on these orders, however, to compensate Instacart shoppers who go to the warehouse to buy the items. Price are also generally 15% to 17% higher than warehouse walk-in prices, Costco says. Additional fees will be added to orders under $35.

For either option, Costco notes on its FAQ page that shopping in the warehouse is still cheaper, as added delivery and other fulfillment costs, as well as service fees, add up to a more expensive shopping experience.

Feeling Confident

Costco sounds like it’s confident it can take on its competitors with these new options.

“We feel good that we’ve got a few delivery options for our members that frankly are better than the ones they were doing the day before with us or with Instacart or with anybody else,” Chief Financial Officer Richard Galanti said during the company’s earnings call.

And while recent reports have indicated that Amazon has been poaching new customers from its competitors with its price cuts at Whole Foods, Galanti says it’s not a problem for Costco, despite the fact that the companies “essentially overlap everywhere.”

“I read yesterday that there are some specialties brick and mortar retail stores that are impacted more than others,” Galanti told analysts. “We don’t believe we’ve seen an impact from it.”

Previously, Costco dipped its toes into the delivery waters with a Shipt partnership in the Tampa Bay, FL, area.