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Is There Money to be Made off Costco’s New Strategy?

October 7, 2017
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Costco has made a name for itself over the years as one of the premier wholesalers across North America. Now, as it feels the pinch from the likes of Amazon, it is trying something new. Fox Business reports that:

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. 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.

While the strategic shift may be a major one, Costco has little choice but to modernise. The company has been under “serious pressure from Amazon’s purchase of Whole Foods,” according to Fox Business.

While Costco may be making an effort at e-commerce, it is unlikely that it will try to embrace an approach anywhere near what Amazon has done. The nature of their business as wholesalers relies on the large warehouse stores they own which would otherwise go to waste.

Business Insider interviewed Costco CFO Richard Galanti who said:

“There are people that actually want to go touch their fresh foods and decide, pick it themselves,” Galanti said Thursday. “There’s going to be an increasing percentage of online and online delivery and the question is, in brick and mortar … ‘How can you drive sales if you’re not offering as many alternatives?'”

What is clear from his words is that Costco does not want a complete shift in strategy. He still believes in personal shopping rather than the e-commerce approach.

Investors, however, should be excited about this experiment. If Costco has any success with it, there may be a chance that it can expand its e-commerce operation and offer Amazon some competition. Prices at Costco tend to be lower than those of Whole Foods, so despite the need for a membership, there is a large market of people who will pay for cheaper goods. Keep an eye on the company to see if it is the right investment for you.

To read Fox Business’ article on Costco’s new online delivery system, click here.

To read Business Insider’s article on Costco competing with Amazon, click here.

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