Costco, in a face-off with online powerhouse Amazon which is aggressively moving into the grocery space, has launched two new delivery options for its millions of members.
The warehouse club company said that starting this week, Costco Grocery will offer nearly 500 non-perishable items that will be delivered in two days, with orders over $75 dropped off for free. Meanwhile, a separate service offered at 376 stores in the U.S. will give customers the choice of roughly 1,700 items, including fresh groceries, and has the option of same day delivery.
The news came Thursday as the company reported net income for the quarter ending Sept. 3 of $919 million, or $2.08 per share, compared with $779 million, or $1.77, a year earlier.
Total revenue, which includes net sales and membership fees, rose to $42.3 billion in the quarter, up from $36.6 billion a year earlier.
Investors have been warily watching Amazon, which has disrupted various categories of retail and recently made a big play in the grocery space with its $13.7 billion purchase of Whole Foods in August.
After the Amazon deal closed on Aug. 28, Whole Foods' foot traffic increased 25% in the first two days as the chain, known for costly organic products, reduced prices on select items ranging from fish to baby kale.
But Costco has an offering that should enable it to hold its own, says Josh Blechman, director of capital markets at the asset manager ACSI Funds.
"We feel that Costco has some real inherent advantages in terms of being able to stave off Amazon,'' Blechman says. "They compete on price, whereas Amazon doesn’t. They compete on convenience.''
Costco is also buoyed by its membership revenue, which quarter after quarter bolsters its bottom line. In June, the warehouse club company increased its annual fees for roughly 35 million members in the U.S. and Canada. The new charges rose from $5 to $60 for individuals, companies, and business add-on members.
In the most recent quarter, which included the hike, fees added up to $943 million in revenue, up from $832 million a year earlier. And Costco said that it had 90.3 million members, up from 88.9 million in the previous quarter.
Costco is the the third-largest grocery retailer in the U.S., after Walmart, which is No. 1, and Kroger. Albertsons is ranked fourth and Amazon is currently in fifth place.