Following a relative reluctance to develop its ecommerce business to include a store pickup service, Costco is testing a curbside model at stores in New Mexico, USA.
Optimising its partnership with Instacart
Although Costco has operated an online non-food business for several years, it wasn’t until 2017 that it started to offer a grocery-focused service. Launching three and a half years ago, it started to offer a two-day shipping service for core grocery and consumable items and a same-day delivery partnership with Instacart. While this has gone from strength to strength, including expansion into Canada, the retailer has been reluctant to offer a store pickup service for grocery items.
$10 pickup fee higher than market average
Costco’s main concerns with this model relate to its profitability and space within its clubs to offer the service. It is worth noting that the service, which is being offered at three of its clubs in Albuquerque, New Mexico, comes with a fee of $10 and a minimum order of $100. While these requirements may help to address the economics of the model, the pickup fee is significantly higher than other retailers. Dedicated parking spaces have also been made available at the front of its clubs. While the delivery service is open to non-members, only Costco members can use this service. As with its same-day delivery service, Costco is partnering with Instacart for this test.
With grocery ecommerce growth accelerating since the start of the pandemic, and retailers expanding their pickup services as part of their solution to add more capacity, it was inevitable that Costco would have to consider this model. Its key competitor, Sam’s Club, has been one of the most innovative retailers with its club pickup service, being one of the first retailers to offer geo-fencing and automated check-in to enhance the experience.
This service is likely to prove popular with members, despite the relatively high pickup fee. We expect to see this test expanded to other US markets before a wider roll-out takes place. This could also include testing a service where members have to collect their orders inside the club. Recently the retailer has announced plans to close its photo centres, potentially creating the space for this service.
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