Costco has held off on offering curbside pickup for groceries for years. Now, in a shift, it’s trying it out at three stores in Albuquerque, New Mexico.
Costco announced last week that it would start offering members of the warehouse club in the area same-day pickup on 2,000 grocery and general merchandise items. There’s a $100 order minimum to choose pickup, and a $10 fee on each order because the model “adds an additional expense to our low-cost business model and limited markup structure,” the company says on its website.
The company previously only offered pickup on expensive items like jewelry and electronics, saying it was costly to offer more broadly. Some Wall Street analysts have questioned whether Costco should expand the service to other goods as curbside pickup explodes in popularity.
Richard Galanti, chief financial officer at Costco, said that the company wanted to test it out in a small market.
“We’re always trying different things. We still scratch our head a little bit on it. We figured we’d try it in a discrete market where there’s just a limited number of locations,” he told CNN Business. “And it’s really nothing more than a test at this point.”
Costco has dedicated parking spaces for customers driving in to grab their orders at each of the stores in Albuquerque. Employees prepare the online orders and bring them out to customers’ cars. Customers will shop for orders and pay through Costco’s website.
Costco’s test comes as rivals, such as Walmart, Kroger and Amazon-owned Whole Foods, have also expanded their own curbside pickup offerings during the pandemic.
Costco’s new pickup option has a higher minimum order threshold and fee than other chains. Walmart, Kroger and Whole Foods offer free grocery pickup for orders above $35.
In the past few years, Costco has said curbside pickup for groceries doesn’t make sense to offer, mainly because the club doesn’t have much room in its jam-packed stores and parking lots to pull off the logistics of pickup. The option requires a staging area inside the store for workers to assemble orders, extra cooler space to keep items fresh and dedicated parking spots for customers driving in to come grab their groceries.
“You have to have a place to store the stuff,” Galanti said in interview last year. “You can’t store it at room temperature. You’ve got to separate it into refrigerated, frozen and dry.”
Costco, which operates on razor-thin profit margins, also says it’s too expensive for its business to have employees dedicated to putting together customers’ orders and bringing them out to their cars.
And Costco wants shoppers to come into warehouses, where they often make unexpected purchases while browsing around. Pickup takes away this opportunity for Costco to drive sales.
“We want you to walk the warehouse and see what we have to offer,” Galanti said.