May 22, 2024
Photo by Omar Abascal on Unsplash
How Should Costco Deal With Non-Members?
Costco has made a significant move to expand its accessibility by forming a strategic partnership with Uber, allowing non-members to order products from the warehouse club. Traditionally, Costco’s business model has centered around membership, requiring customers to fill out an application and join the club to shop in-store.
This expands on Uber’s recent offerings of affordable airport shuttle rides, discounted Uber One subscriptions for students, and a new service for caregivers to book rides and order supplies for patients. Other features include curated “Lists” for dining experiences and the ability to schedule shared rides for cost savings. Uber also recently announced a partnership with Instacart, allowing users to order restaurant deliveries through Uber Eats directly from the Instacart app.
Costco has been vigilant about enforcing its membership model, implementing technology in some markets that mandates members to scan their cards before entering the store. Moreover, Costco has tightened its rules by starting to keep people from purchasing items from its popular food courts without showing a membership card, according to Business Insider.
Some Costco locations have outdoor kiosks or food courts, and this gave non-members access to purchase food in many cases. But more recently, the retailer has begun to crack down on non-members. Per one Reddit post, an image of a sign outside of an Orlando Costco said: “Effective April 8, 2024, an active Costco membership card will be required to purchase items from our food court.” Many users commented to note that this has always been the policy in other locations, but some stores may not have enforced it as much as others.
These membership rules are aimed at safeguarding the company’s primary revenue source, as over half of Costco’s profit comes from membership sales. By limiting access to non-members, the company aims to maintain the exclusivity and value of its memberships, thus keeping its paying members satisfied.
This may seem contradictory, however, since Costco gains food court sales from non-members. The retailer also still allows non-members to make prescription purchases from their Costco pharmacies.
Furthermore, despite these strict in-store policies, Costco has introduced two ways for non-members to shop: through partnerships with Uber and Instacart. While Instacart has been a long-term partner, the recent collaboration with Uber in some markets marks a new chapter in Costco’s approach to reaching a broader audience.
It is important to note that prices for non-members ordering through Uber or Instacart are higher than in-store prices for members. Instacart explains that this markup covers its delivery service costs and mentions a minimum order requirement of $35. Uber also implements higher prices for non-members but provides discounts of 15% to 20% for those with a Costco membership. Even with these services, the convenience comes at a cost, and prices may still be higher than in the physical warehouses.
Another interesting aspect at play is how the Costco delivery service allows non-member customers to order the deli’s rotisserie chicken and bulk supplies but not alcohol and gold bars, according to Axios. Additionally, customers can browse discounted items on the app, with delivery fees varying by location.
Regardless, Costco’s membership model remains robust, with the company reporting a high retention rate. As of the end of Q2 2024, the U.S. and Canada renewal rate stood at 92.9%, and the global rate was 90.5%. Additionally, Costco has seen a rise in the number of paid household members, reaching 73.4 million, and cardholders, totaling 132 million, marking year-over-year growth of 7.8% and 7.3%, respectively.
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Rachelle King
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David Naumann
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Jamie Tenser
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Discussion Questions
How does Costco’s partnership with Uber and Instacart reflect changes in retail logistics and consumer accessibility, and what implications does this have for membership-based business models?
How might Costco’s strategy of strict in-store membership policies combined with higher-priced delivery services for non-members impact the perceived value of memberships and customer loyalty?
With Costco’s high membership renewal rates and new delivery options for non-members, how can the company expand its customer base without diluting the exclusivity that drives membership sales?
Poll
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With volumes in grocery under pressure, Costco wants to ensure that it is widening its audience and capturing as much share as it can. The partnerships with Instacart and Uber allow it to do that. They also make up for Costco’s weak online presence, which is somewhat deficient (deliberately so as Costco doesn’t want to play too heavily in this arena itself). However, the rub is that shopping via third party apps does not give consumers access to the sharp Costco prices found in stores. Ranges can also be more limited, and you don’t get the full in-store experience with tasting and bargain hunting. For these reasons, these partnerships are incremental to, rather than a threat to, traditional memberships.
Here’s the thing: I pay for my Costco membership. Why should I continue to do that if non-members can get (albeit lesser) similar benefits without joining?
Is Costco going to curate an assortment to purchase through Uber for non-members? To your point- I pay membership every year and I like my benefits but am I going to be able to the same without paying for it?
Costco would almost have to curate special, limited assortments for non-members. If it doesn’t it runs the risk of alienating members. Whatever Costco offers non-members will cheese off those who pay to shop there. You can’t have it both ways.
100% Agree.
All is well until marginal members discover they don’t have to renew for access.
By expanding access to consumers through Uber and Instacart, Costco can attract new members while minimizing any resentment from current members. Costco has struck a delicate and appropriate balance of offering the right kind of incentives. Higher prices for non-members and delivery services will only help it sell more memberships. But even for those consumers who prefer not to be members, they still have a way to purchase, albeit at a higher price. Costco has one of the very best (if not the best) membership programs in retailing, and their commitment to putting members first is at the heart of it.
I am with Georganne! I guess this will be a biased view if we all come out as Costco members, no? ;-).
So…trying to look at this objectively, Costco’s partnership with Uber and Instacart enhances logistics and consumer accessibility, adapting to e-commerce trends while broadening reach to non-members.
However, as a long-time member, maintaining strict in-store membership policies with higher-priced delivery for non-members would boost my membership value and loyalty, as they are incentivizing non-members to join for better pricing and access. They need to do so, without disappointing me, you, the loyal member who deliberately chose Costco’s executive membership cost over a Sam’s Club.
So to expand its customer base without losing exclusivity, Costco should continue to offer unique member benefits while using delivery partnerships as a gateway for non-members to experience its services and consider full membership, without overloading the store (traffic), creating any inefficiency, and frequent reminders of why membership matters. Show me the “magic” (aka money) Costco!
Costco has been uber successful with its membership model and it ought to continue to stringently enforce the rules at all store locations, including the food court. It’s part of their brand strategy that has made them one of the most successful retailers in the world. I would advise them to carefully review non-member access because they’ll want to avoid the 73.4 million mark turning into a ‘peak’ statistic only to see declines thereafter.
The genius of Sol Price’s paid membership concept was the up-front cash flow it created. I recall learning how many products turned so rapidly that they sold through before the invoices were due from the vendors. In effect, Costco was buying goods with its customers’ and suppliers’ money, not its own.
This formula is most lucrative in times of higher inflation, when excess cash on hand can be invested in financial instruments that can be even more profitable than merchandise sales.
Which is part of the reason it can maintain those iconic member perks – like the $1.50 hot dog and the $4.99 roast chicken – known loss leaders that the company rightly reserves for its paying card holders.
Offering alternative online shopping access via the Uber and Instacart partnerships shouldn’t undermine the experience of its traditional members, I think. Generated sales are incremental, and at higher non-member prices/margins. For some shoppers, this convenience option could the the little “taste” that motivates them to join for real.
I seem to recall that Sam’s Club used to distribute non-member passes that enabled a visitor to try out the store, albeit with a 5% surcharge over posted prices. Today, if an Uber shopper wants the Costco deal on gold bars, they will have to join first.
Partnering with Uber and Instacart will help Costco reach and resonate with younger non-members who seek convenience. Costco is building relationship to increase the likelihood these consumers convert into loyal members who in turn gain access to richer benefits.
Membership has its privileges. (Oh, that’s a slogan from another major brand.) Seriously, if you’re going to charge a membership fee and then allow others who aren’t members to buy, there better be a good incentive to stay a member. Yes, Costo realizes this, so there isn’t an issue. Consider that you don’t have to be a Prime member to shop at Amazon, and that doesn’t deter membership sales. Why? There are plenty of benefits. Brands like Amazon and Costco are masters are the membership model. Most of the answers to today’s questions are in the article. Kudos to Costco for non-members to experience a little of Costco, even at a higher price.
Costco is handing a complex buying environment the best way it can. It wouldn’t be easy to manage users of Instacart and Uber. They need to allow purchases from non-members if they are using those types of services.
But Costco is doing the right thing to protect their profit model by keeping prices lower inside the stores for members only.
Normally, I would argue that outdoor food courts ought to be available to everybody, but since Costco’s food courts are so elite its best to make it members only. Db
Given how precious Costco has been about protecting the exclusivity of their stores through memebership, it is indeed a sign of the times to see these new partnerships with Uber and Instacart. Kudos to Costco for finding a way to evolve their business model to adapt with today’s modern commerce while still protecting the elite value of membership.
The store is no longer the center of gravity for retail. Merchants with membership or similar models that place high value of store traffic absolutely need a diversified business model. The intent is not to replace store traffic but to ensure access and presence where consumers shop today. In addition, leveraging diffferent commerce channels and partners like Uber or Instacart can help reach new customers and potentially trade them up to membership.
Now that there is a crack in the virtual door for non-members, Costco will need to be even more vigilent about members perceived value of membership to keep members happy (and growing). This could be an interesting new pathway for Costco if not also quite lucrative if smartly managed.
Costco have a good presence in the UK so as a shopper I can only provide perspective from that point of view. There are a couple of nuances that make the ‘value’ of Costco membership questionable. While we have been members in the past and have revisited the perspective a number of times we come to the same conclusion. I know that my thinking is shared with friends in the UK.
Things could have changed but some years ago they did not take credit cards making things tricky from a monthly cash-flow perspective when you consider packsize/cost.
Additionally, prices are shown without tax – while this is normal in the US, it is normal for prices in UK stores to be shown with tax – so you have to do the maths – not the end of the world as it is as simple 20% VAT to add on – but mentally it is tricky.
The other perspective is that of pack-size. The average UK home is half the size of that in the US – which means that storage for large pack sizes can be tricky.
I understand Costco’s strategy to expand its audience with a partnership with Uber and Instacart to enable non-members to order Costco products. As a Costco member, it seems a little unfair to allow non-members to order products, but if they are significantly more expensive through Uber and Instacart, it is acceptable (IMHO). Costco is trying to spur incremental revenue and that is understandable. However, they need to properly manage the pricing so that it doesn’t alienate their loyal members.
Membership retail is a tough business. The exclusivity inherent in the model inhibits growth, yet it also justifies the investment for members. Costco is in a particularly tough spot as it sticks with its store-centric approach even as competitors’ online businesses have matured. That said, Costco has likely made a calculation that any annoyance on the part of its membership won’t result in mass defections.
Costco, Sam’s Club, and BJ’s Wholesale all have a business model based on membership that is critical to their business success. Costco (and Price Club before them) had been the best at executing this model to perfection consistently.
Before we all lose our minds over this development, perhaps we should consider that this is a test of concept, with the likely desired outcome being that these consumers get the opportunity to “sample” Costco products and services at a higher cost, and Costco now has the data necessary to market to them and convert them into members.
No wholesale club is profitable without the membership fee…even Costco. But the key to driving new member acquisition is driving trial for non-members. This initiative is a creative new way of accomplishing that goal, and not…I’m sure…a change in their business model.
Now…let’s all take a breath.
I don’t perceive a real issue. As previously noted, non-members miss pricing advantages, sampling & the all important “treasure hunt.” This initiative provides Costco with some needed online presence without compromising their winning membership model.
It’s smart for Costco to create avenues for non-members to shop, while protecting the benefits members receive. In this market, brands have to be accessible in as many ways as possible to potential customers, but for a retailer rooted in a membership model, maintaining their value prop is key. This all makes sense to me.
Partnerships with Uber and Instacart serve a transactional purpose but lower the value of the membership. Perhaps you need to be a member in order to use these services-that might be one way to frame it. Or limit the # of deliveries a non member can receive. Something. I know I know–higher prices for deliveries however that is the norm.
You pay the membership fee to have access to better prices and the shopping experience. Delivery to non members diminishes the membership.
My (educated) guess is that this is part of a beta test to get new members. Just as Netflix encouraged password-sharing for years, only to crack down recently and then get millions of new customers who couldn’t give up their service, Costco may do the same. In the near-term they continue to drive revenue, while creating stickiness that will help their membership numbers in the long-term.
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With volumes in grocery under pressure, Costco wants to ensure that it is widening its audience and capturing as much share as it can. The partnerships with Instacart and Uber allow it to do that. They also make up for Costco’s weak online presence, which is somewhat deficient (deliberately so as Costco doesn’t want to play too heavily in this arena itself). However, the rub is that shopping via third party apps does not give consumers access to the sharp Costco prices found in stores. Ranges can also be more limited, and you don’t get the full in-store experience with tasting and bargain hunting. For these reasons, these partnerships are incremental to, rather than a threat to, traditional memberships.
Here’s the thing: I pay for my Costco membership. Why should I continue to do that if non-members can get (albeit lesser) similar benefits without joining?
Is Costco going to curate an assortment to purchase through Uber for non-members? To your point- I pay membership every year and I like my benefits but am I going to be able to the same without paying for it?
Costco would almost have to curate special, limited assortments for non-members. If it doesn’t it runs the risk of alienating members. Whatever Costco offers non-members will cheese off those who pay to shop there. You can’t have it both ways.
100% Agree.
All is well until marginal members discover they don’t have to renew for access.
By expanding access to consumers through Uber and Instacart, Costco can attract new members while minimizing any resentment from current members. Costco has struck a delicate and appropriate balance of offering the right kind of incentives. Higher prices for non-members and delivery services will only help it sell more memberships. But even for those consumers who prefer not to be members, they still have a way to purchase, albeit at a higher price. Costco has one of the very best (if not the best) membership programs in retailing, and their commitment to putting members first is at the heart of it.
I am with Georganne! I guess this will be a biased view if we all come out as Costco members, no? ;-).
So…trying to look at this objectively, Costco’s partnership with Uber and Instacart enhances logistics and consumer accessibility, adapting to e-commerce trends while broadening reach to non-members.
However, as a long-time member, maintaining strict in-store membership policies with higher-priced delivery for non-members would boost my membership value and loyalty, as they are incentivizing non-members to join for better pricing and access. They need to do so, without disappointing me, you, the loyal member who deliberately chose Costco’s executive membership cost over a Sam’s Club.
So to expand its customer base without losing exclusivity, Costco should continue to offer unique member benefits while using delivery partnerships as a gateway for non-members to experience its services and consider full membership, without overloading the store (traffic), creating any inefficiency, and frequent reminders of why membership matters. Show me the “magic” (aka money) Costco!
Costco has been uber successful with its membership model and it ought to continue to stringently enforce the rules at all store locations, including the food court. It’s part of their brand strategy that has made them one of the most successful retailers in the world. I would advise them to carefully review non-member access because they’ll want to avoid the 73.4 million mark turning into a ‘peak’ statistic only to see declines thereafter.
The genius of Sol Price’s paid membership concept was the up-front cash flow it created. I recall learning how many products turned so rapidly that they sold through before the invoices were due from the vendors. In effect, Costco was buying goods with its customers’ and suppliers’ money, not its own.
This formula is most lucrative in times of higher inflation, when excess cash on hand can be invested in financial instruments that can be even more profitable than merchandise sales.
Which is part of the reason it can maintain those iconic member perks – like the $1.50 hot dog and the $4.99 roast chicken – known loss leaders that the company rightly reserves for its paying card holders.
Offering alternative online shopping access via the Uber and Instacart partnerships shouldn’t undermine the experience of its traditional members, I think. Generated sales are incremental, and at higher non-member prices/margins. For some shoppers, this convenience option could the the little “taste” that motivates them to join for real.
I seem to recall that Sam’s Club used to distribute non-member passes that enabled a visitor to try out the store, albeit with a 5% surcharge over posted prices. Today, if an Uber shopper wants the Costco deal on gold bars, they will have to join first.
Partnering with Uber and Instacart will help Costco reach and resonate with younger non-members who seek convenience. Costco is building relationship to increase the likelihood these consumers convert into loyal members who in turn gain access to richer benefits.
Membership has its privileges. (Oh, that’s a slogan from another major brand.) Seriously, if you’re going to charge a membership fee and then allow others who aren’t members to buy, there better be a good incentive to stay a member. Yes, Costo realizes this, so there isn’t an issue. Consider that you don’t have to be a Prime member to shop at Amazon, and that doesn’t deter membership sales. Why? There are plenty of benefits. Brands like Amazon and Costco are masters are the membership model. Most of the answers to today’s questions are in the article. Kudos to Costco for non-members to experience a little of Costco, even at a higher price.
Costco is handing a complex buying environment the best way it can. It wouldn’t be easy to manage users of Instacart and Uber. They need to allow purchases from non-members if they are using those types of services.
But Costco is doing the right thing to protect their profit model by keeping prices lower inside the stores for members only.
Normally, I would argue that outdoor food courts ought to be available to everybody, but since Costco’s food courts are so elite its best to make it members only. Db
Given how precious Costco has been about protecting the exclusivity of their stores through memebership, it is indeed a sign of the times to see these new partnerships with Uber and Instacart. Kudos to Costco for finding a way to evolve their business model to adapt with today’s modern commerce while still protecting the elite value of membership.
The store is no longer the center of gravity for retail. Merchants with membership or similar models that place high value of store traffic absolutely need a diversified business model. The intent is not to replace store traffic but to ensure access and presence where consumers shop today. In addition, leveraging diffferent commerce channels and partners like Uber or Instacart can help reach new customers and potentially trade them up to membership.
Now that there is a crack in the virtual door for non-members, Costco will need to be even more vigilent about members perceived value of membership to keep members happy (and growing). This could be an interesting new pathway for Costco if not also quite lucrative if smartly managed.
Costco have a good presence in the UK so as a shopper I can only provide perspective from that point of view. There are a couple of nuances that make the ‘value’ of Costco membership questionable. While we have been members in the past and have revisited the perspective a number of times we come to the same conclusion. I know that my thinking is shared with friends in the UK.
Things could have changed but some years ago they did not take credit cards making things tricky from a monthly cash-flow perspective when you consider packsize/cost.
Additionally, prices are shown without tax – while this is normal in the US, it is normal for prices in UK stores to be shown with tax – so you have to do the maths – not the end of the world as it is as simple 20% VAT to add on – but mentally it is tricky.
The other perspective is that of pack-size. The average UK home is half the size of that in the US – which means that storage for large pack sizes can be tricky.
I understand Costco’s strategy to expand its audience with a partnership with Uber and Instacart to enable non-members to order Costco products. As a Costco member, it seems a little unfair to allow non-members to order products, but if they are significantly more expensive through Uber and Instacart, it is acceptable (IMHO). Costco is trying to spur incremental revenue and that is understandable. However, they need to properly manage the pricing so that it doesn’t alienate their loyal members.
Membership retail is a tough business. The exclusivity inherent in the model inhibits growth, yet it also justifies the investment for members. Costco is in a particularly tough spot as it sticks with its store-centric approach even as competitors’ online businesses have matured. That said, Costco has likely made a calculation that any annoyance on the part of its membership won’t result in mass defections.
Costco, Sam’s Club, and BJ’s Wholesale all have a business model based on membership that is critical to their business success. Costco (and Price Club before them) had been the best at executing this model to perfection consistently.
Before we all lose our minds over this development, perhaps we should consider that this is a test of concept, with the likely desired outcome being that these consumers get the opportunity to “sample” Costco products and services at a higher cost, and Costco now has the data necessary to market to them and convert them into members.
No wholesale club is profitable without the membership fee…even Costco. But the key to driving new member acquisition is driving trial for non-members. This initiative is a creative new way of accomplishing that goal, and not…I’m sure…a change in their business model.
Now…let’s all take a breath.
I don’t perceive a real issue. As previously noted, non-members miss pricing advantages, sampling & the all important “treasure hunt.” This initiative provides Costco with some needed online presence without compromising their winning membership model.
It’s smart for Costco to create avenues for non-members to shop, while protecting the benefits members receive. In this market, brands have to be accessible in as many ways as possible to potential customers, but for a retailer rooted in a membership model, maintaining their value prop is key. This all makes sense to me.
Partnerships with Uber and Instacart serve a transactional purpose but lower the value of the membership. Perhaps you need to be a member in order to use these services-that might be one way to frame it. Or limit the # of deliveries a non member can receive. Something. I know I know–higher prices for deliveries however that is the norm.
You pay the membership fee to have access to better prices and the shopping experience. Delivery to non members diminishes the membership.
My (educated) guess is that this is part of a beta test to get new members. Just as Netflix encouraged password-sharing for years, only to crack down recently and then get millions of new customers who couldn’t give up their service, Costco may do the same. In the near-term they continue to drive revenue, while creating stickiness that will help their membership numbers in the long-term.