Costco launches online grocery offering

Costco Wholesale, which has come under some scrutiny for lagging the trend toward online shopping, this week announced two initiatives to address that void, including an expanded partnership with Instacart and a new online shopping service known as CostcoGrocery.

The latter offering, which launched for the first time Oct. 1, consists of around 500 nonperishable dry grocery items, which will be delivered free to Costco shoppers making orders of more than $75. The Instacart offering, now available at 376 U.S. locations, will be expanded to additional locations between now and the end of fiscal 2018 next September. That offering, through a “white label” partnership, provides same-day delivery of about 1,700 fresh and nonperishable items.

Officials made the announcements late Thursday while reviewing financial results for its fiscal fourth quarter.

Richard Galanti, Costco’s CFO, in a conference call said that online grocery shopping at Costco has typically been used as a “fill-in” shop by its customers, but he didn’t underestimate the potential value of that. “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,” he said. “So we feel that to the extent that somebody wants to choose to use that route, they'll be able to and we'll be able to generate the sales from it.”

E-commerce sales improved by 21% in the quarter. At the same time, Galanti told analysts, Costco still prefers when their shoppers visit stores, where baskets are typically much larger. He said Costco “had only scratched the surface” of its ability to generate store visits using electronic messaging to shoppers.

Some investors have been concerned that Costco was falling behind in e-commerce efforts, even if analysts said those fears were overstated. “Costco can now offer home delivery for comparable products vs. Amazon including fresh at lower price points from 73% of the U.S. store base,” Karen Short, a Barclays analyst, said in a note Friday.

Investors also appeared concerned that a slight drop in membership renewals signaled trouble at Costco, but company officials said the dip (from 87.5% to 87.3% in the quarter) related to lapping a period of adjustment following the Costco credit card change a year ago. Nonetheless, Costco stock was down 6% Friday afternoon.

Net sales for the 17-week fourth quarter, which ended Sept. 3, were $41.4 billion, an increase of 15.8% from the 16-week fourth quarter of fiscal 2016. Net sales for the 53-week fiscal year were $126.2 billion, an increase of 8.7% from $116.1 billion in the 52-week fiscal year of 2016.