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Is Costco Itself The Next Great Bargain It Offers Its Customers?

Will Healy profile picture
Will Healy


  • Amazon has become a deeper threat to Costco with its acquisition of Whole Foods.
  • Amazon has to integrate the higher cost structure of Whole Foods into its low-cost pricing model.
  • Customer loyalty and a history of surviving challenges indicate Costco can thrive under the competitive threat.

With the acquisition of Whole Foods (WFM) by online giant Amazon (AMZN), Costco (NASDAQ:COST) has seen its stock fall from approximately $180/share to about $158/share as of the time of this writing. In a previous article, I argued that Costco’s greatest competitive threat was Amazon and not Sam’s Club. The acquisition of Whole Foods means that Amazon poses a greater threat since Amazon now has brick and mortar stores by which they can compete more directly in the grocery category, estimated to be about 35% of Costco’s sales. With the uncertainty that Amazon has created in the grocery marketplace, Costco’s strengths and weaknesses should be re-evaluated before taking advantage of the lower stock price.

The increased competitive threat by Amazon is undeniable. The Whole Foods acquisition provides Amazon with brick and mortar grocery stores in most all the largest metropolitan areas in the U.S. Additionally, customers who have little time to shop can rely on the Amazon Echo to order items on command, and the company can have this food delivered, in some cases faster than it can be picked up at Costco. That said, investors should also not assume that Amazon’s acquisition will be an unqualified success. While Amazon competes aggressively on price, Whole Foods has a reputation for high prices, earning the moniker “Whole Paycheck,” as lower-priced competitors started stocking organic foods and reducing their market share. It’s still unclear whether Whole Foods can bring its prices to Amazon’s competitive level.

And despite the new challenge, many of Costco’s strengths remain. It has a long history of holding up well against competitive threats. Costco’s sales growth has a long track record of year over year growth going back over a decade, with the only exception being 2009 which saw a 1% drop in sales. Though growth has slowed over the last

This article was written by

Will Healy profile picture
Will Healy, MBA, is a graduate of the Jindal School of Management, writer and entrepreneur based in Dallas, Texas. I enjoy following the markets and like to write about macro issues, forex, emerging markets, and commodities with an occasional focus on bonds or cash. Thank you for clicking on my stories and your feedback and insight is greatly appreciated.

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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