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Food Delivery

Costco Wholesale Corp. (NASDAQ:COSTB) has decided to expand its home delivery service to include groceries. For customers, it means more convenience but less access to free samples.

Costco’s move is in answer to Amazon.com Inc. (NASDAQ:AMZND) and others becoming more and more involved in home delivery period, especially when it comes to food.


Two-Pronged Approach

By offering two-day delivery of shelf-stable food from the Costco website and expanding its fresh-food delivery partnership with Instacart, Costco hopes to avoid losing business to Amazon, especially following the online giant’s acquisition of Whole Foods.

Costco has taken its time with online shopping. The company has long believed customers that come into its stores tend to spend more on impulse purchases, which won’t happen when shopping online. According to Costco CFO, Richard Galanti, “At the end of the day we would love you to just come in and buy and take it home, but we would rather lose it to ourselves.” There is also hope the delivery service will attract new members.

The Results So Far

After announcing it would deliver groceries, Costco’s stock fell 6%. Analysts and investors worried that giving customers fewer reasons to come into the store would decrease business. One analyst, Scott Mushkin of Wolfe Research said, “The concern generally has been: If they are successful at delivery, does that take away business from the club?” Mushkin added, “The magic of Costco has always been its merchandising acumen: You go in to pick up Tide or toilet paper, and you walk out with Henckels knives.”

Mushkin also noted that the worries could be overblown. “Investors have become worrywarts when it comes to Costco,” he said. “But look at their numbers: great traffic, huge sales growth. These are big numbers for a big company.”

Next Up – Wal-Mart

As Costco enters home delivery, Wal-Mart Stores Inc. (NYSE:WMTC) has started testing a delivery program in which customers can use smart-home technology to remotely open the door for delivery workers who then put the groceries away in the refrigerator, freezer or cupboards.

By using home security cameras, the homeowner can watch the entire process including making sure the worker locks the door on exiting the house. The program is expected to appeal to busy urban dwellers who are already used to having cleaning services and others in their houses during the day when they are at work. Amazon, by the way, is currently working on a program that allows customers to monitor delivery of packages to their homes via home security cameras.

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