Wholesale clubs should sell groceries online

February 27, 2014

By delivering everyday foods, clubs would be convenient, appeal to broader bases, and blunt Amazon.

Supermarkets warily eye Amazon, its AmazonFresh initiative, and other online deliverers of food as trip robbers.  But the real potential killer in this sector hasn’t shown its full hand yet.

The Lempert Report believes wholesale clubs could clean up in online grocery delivery.  This tactic could be a triple-win for clubs: grow food volume and membership fees by attracting a broader base of new members, and in one swoop make their ‘out of the way’ locations convenient.  

Clubs already enjoy excellent reputations for much of the food they sell, including fresh.  Some may hesitate because they count on shoppers’ impulse urges to fill the large carts in their stores.  However, if they structure an online delivery business that entices online, encourages multiple purchases, and still inspires people to go to the clubs, we feel they’ll grow volume rather than cannibalize it.

The current Costco online offer is limited in categories and is probably positioned too boldly to induce regular purchases.  For example, the lowest price cheese is an $84.99 collection, and the highest price is a 72-pound wheel of 24 months aged Parmigiano Reggiano for $899.99.  Its lowest price beef is 10 pounds of organic grass-fed 85/15 ground beef for $99.99, and its highest price is Japanese Wagyu Kobe Beef A-5 Grade for $1,499.99 ($136.37 per pound).

Items like these make an image, but they’re not for everyone – and they’re not for regular trips.  If clubs decided to pursue online grocery delivery for more mainstream food needs, we believe they’d leverage their earned reputations for food quality.  Also, clubs that are honest with themselves would acknowledge that customer visits can be part hassle (travel, parking, big box, crowds, lines) that people might like to avoid sometimes. Why not give them a choice?

Clubs have never been about convenience.  But with online grocery delivery they could be – and that could help them raise their following among consumers.  According to the 2014 National Grocers Association-SupermarketGuru Consumer Survey Report, just 3.4% of consumers said they buy most of their foods at wholesale clubs, down from 4.2% a year earlier.