Costco CEO's Famous Last Words on Grocery Delivery

A blog about business and economics.
June 6 2013 9:05 AM

Costco CEO Says Nobody Can Figure Out How to Do Same-Day Grocery Delivery Profitably

Shopping carts are collected outside a Costco store in Alhambra, Calif., on June 2, 2013.
Shopping carts are collected outside a Costco store in Alhambra, Calif., on June 2, 2013.

Photo by Frederic J. Brown/AFP/Getty Images

Brad Stone has a great profile in Business Week of Costco and its CEO, Craig Jelinek, focused on his high-road approach to employee compensation and morale in contrast to the ruthless cost-cutting at other major retailers. But I think Mina Kimes was right to pull out this little ditty on grocery delivery as particularly interesting:

Since much of Costco’s growth is concentrated in food, it could be particularly vulnerable if Amazon ever cracks the grocery delivery business. (Amazon has been testing such a service, AmazonFresh, in Seattle since 2007, and is reportedly set to expand nationally in the next few months.) Jelinek says Costco has studied online grocery delivery but can’t figure out how anyone can do it profitably.
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Without further context that reads like a prediction that AmazonFresh will fail. But loyal Moneybox readers will recognize this as a sign that Costco might really be doomed. Amazon is a retail juggernaut built on the principle of not doing things profitably. If the big problem with online grocery delivery is that it can't be done profitably, then Amazon is the ideal company to dominate the space. It would essentially be a roundabout way of financing the purchase of a lot of delivery vehicles in order to build out a larger delivery infrastructure. What I don't know is how Google's rival Google Shopping Express service will fit into this landscape.

But make no mistake: Any CEO who's out there comforting himself with the thought that he's already considered what Amazon is talking about and already determined that it's impossible to make money that way is living in a dream world. They don't care. That's why they're terrifying.

Matthew Yglesias is the executive editor of Vox and author of The Rent Is Too Damn High.