Costco unveils 2-day delivery

Costco is testing two-day grocery delivery.

During a quarterly earnings call, Costco announced that it would jump into the grocery delivery game.

After announcing that fourth-quarter sales were up 16% and comp sales more than 6%, CFO Richard Galanti got into how the increase in delivery options is affecting brick-and-mortar sales.

First, he noted that Costco sales were obviously strong and trending up, and that shopping frequency was also strong and trending up. In addition, he also talked about using online to drive business, e-commerce and in-store. 

Therefore, Galanti highlighted the rollout of a new online delivery offerings, including two-day delivery on dry groceries and an expanded white label same-day grocery delivery.

For the two-day service, Costco will offer about 500 SKUs and free delivery on orders over $75. The boxes filled can be as much as 40 lbs.

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Same-day deliveries will be made in partnership with Instacart and will include both dry and fresh groceries. The white label service is available at 376 locations in the U.S., with additional locations being added throughout 2018. These customers can pick from about 1,700 SKUs.

According to Matt Sargent, senior vice president of retail at Magid, the new delivery services from Costco are aimed at capturing the rapidly increased opportunity that Costco is seeing in the digital grocery space and to defend against the Amazon threat.

Data from Magid Retail Pulse has found that Costco owners are more "digitally" focused than customers of Walmart and Kroger. For example, 41% of Costco customers have purchased groceries online, whereas only 30% of Walmart customers and 28% of Kroger customers have shopped for groceries online.

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This digital focus is particularly evident among younger shoppers. Of shoppers 27 to 37 years old with families, 43% have purchased groceries online—a key demographic to Costco's long-term growth. Costco will utilize these new services to capture this opportunity.

"Costco's delivery options will be a huge differentiator for Costco due to the fact that this eliminates a huge barrier for many customers (having to transport bulky items home) and aligns a selling motion (planned,  bulk-up purchases where Costco is a highly preferred brand) with an ideal fulfillment mode," Sargent told FierceRetail. "Costco could expand this offering to same-day delivery, which would further expand its ability to compete directly with traditional grocery."