spending

Costco Expands Online Grocery Delivery With Shipt

App-based ordering is being tested in Florida, but the convenience of grocery shopping from home comes at a price.

As much as Costco loves to see its members crowd store aisles, the wholesale club also recognizes the lucrative potential of online shopping. After all, as Amazon.com has proven, some shoppers are willing to pay a premium to skip the lines and have orders delivered to their doorsteps. And as technology has put the power to order just about anything quite literally in the palm of every shopper's hand, Costco is trying to expand its reach by testing home delivery of groceries with a new partner called Shipt.

Shipt, which like Costco is membership based, now delivers the warehouse club's groceries, including perishables, in the Tampa, Fla., metro area. In an added boost, shoppers who are not members of Costco will still be able to shop for its groceries through Shipt.

Costco and Shipt are testing the partnership in a single market for now, but Shipt's geographic reach would allow the service to expand rapidly should the companies choose to do so. Shipt, which offers unlimited deliveries of groceries for $99 a year, currently services 17 million households in 35 markets. It aims to be in 50 markets with more than 30 million households by the end of the year. Tampa-area residents can try Shipt for free for two weeks and will get $15 off their first Costco order. Shoppers can download and place orders using the Shipt app after registering for the service.

This isn't Costco's first foray into online grocery ordering and delivery. The partnership with Shipt complements Costco's existing relationship with Instacart, which delivers groceries from Costco in as little as one hour in 19 states and the District of Columbia, according to Instacart. You don't need to be a Costco member to use Instacart, but keep in mind that Instacart charges a delivery fee (it varies) and grocery prices won't necessarily be the same as you'd find in a Costco store.

Led by Amazon.com, the online grocery industry is growing by leaps and bounds. U.S. online grocery sales came to $7 billion in 2015 and are forecast to rise to $18 billion by 2020, according to Statista. On a global basis, online grocery shopping is forecast to account for 20% of all groceries sales by 2025, according to a report by market-researcher Nielsen. Much of this growth is being driven by digitally savvy millennials who are starting families of their own.

Costo Membership Fees on the Rise

In a separate development, Costco announced plans in early March to raise its membership fees. The warehouse club will increase annual membership fees by $5 to $60 in the United States and Canada for all its basic "Gold Star" individual and business memberships. Executive memberships in the U.S. and Canada will increase by $10 to $120. Overall, the fee increases will affect around 35 million members. The new fee structure will go into effect on June 1.

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