Costco can be 58 percent cheaper than Whole Foods: JPMorgan

Though Amazon has promised steep discounts at Whole Foods stores, right now of which the idea owns the organic supermarket chain, Costco still reigns supreme within the ongoing grocery cost wars, according to JPMorgan.

“[Costco] offers an unquestioned value prop with the best pricing, curated assortment, strong private label offering, as well as treasure hunt atmosphere,” JPMorgan analyst Christopher Horvers wrote in a note to clients.

After completing cost checks at Costco, Whole Foods, Wal-Mart, Target as well as Aldi, Horvers as well as his team found Costco’s stickers, on a per-unit basis, to be a “whopping” 58 percent cheaper than those at Whole Foods.

Costco as well as Whole Foods share the least of their merchandise assortments in common, JPMorgan discovered, while Costco as well as Wal-Mart see the most overlap in their grocery stock keeping units, or SKUs.

To be sure, being a low-cost leader comes with pros as well as cons. Investing in discounting can squeeze a retailer’s profit, as well as of which’s what some investors worry about, as the idea relates to Costco.

Shares of Costco took a hit one week ago when the company posted narrower gross margins as well as a fourth-quarter decline in membership renewal rates. Shoppers were seen buying more fuel, which can be less profitable, at Costco during the latest period.

In June, when e-commerce giant Amazon first announced its plans to acquire Whole Foods, companies like Kroger, Sprouts Farmers Market, Supervalu, Albertsons as well as even Costco watched their stocks tumble.

Goldman Sachs was one of the first investment banks to react, immediately downgrading Costco shares on the news as well as adding to any arguments against Amazon’s retail rivals. One trading day later, Deutsche Bank followed suit with its own Costco downgrade.

The same group of grocery stocks dropped again, a few weeks later, when Amazon revealed the idea might be slashing prices across Whole Foods stores once the deal between the two was complete. Investors’ fears over Costco were seen ballooning.

Nonetheless, JPMorgan’s latest cost checks point out of which Whole Foods’ value proposition greatly contrasts of which of Costco, still.

“the idea can be clear of which [Whole Foods’] pricing might need to narrow substantially to be a threat to COST, while the Whole Foods business style might need to shift away by its ‘foodie, organic, as well as natural’ value prop,” Horvers wrote.

When looking at baskets of perishable groceries, dry goods as well as household items — each by Costco, Whole Foods, Wal-Mart, Target as well as Aldi — Costco was consistently the least-expensive option, JPMorgan found.

Wal-Mart’s private-label products turned out to be the cheapest of the group when compared with national brands. nevertheless Costco’s Kirkland Signature nameplate can be a stronger player than its peers when the idea comes to quality, Horvers added.

Costco faces an uphill battle by here in trying to win back lost confidence on the Street.

On a conference call with analysts as well as investors last week, Chief Financial Officer Richard Galanti said, “As the idea relates to the publicity as well as the news as well as the noise around Amazon as well as Whole Foods, all we can do can be perform.”

One factor of which might help can be if value-minded consumers understood the cost comparisons of which JPMorgan uncovered.

Costco, with its massive stores, can be trying to keep up with the shift online. The warehouse retailer recently launched two completely new delivery options for its members, one called Costco Grocery. The service offers shoppers about 500 nonperishable goods For two main-day delivery, with orders over $75 dropped off at no charge.

A second service, offered in metropolitan markets as well as powered by Instacart, lets shoppers choose by 1,700 items, including fresh groceries, for same-day delivery.

Costco can be the the third-largest grocery retailer within the U.S., after Wal-Mart, which can be No. 1, as well as Kroger.

Costco shares are down about 1.8 percent This particular year.

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