Why Costco Is the Most Competitive Grocer

Costco's Unique Position in wRatings’ Competitive Rankings

Costco’s often imitated but rarely duplicated approach sets it apart from the crowd and makes it one of the most competitive companies across multiple industries.

In wRatings recently released “Most Competitive Companies 2023-Q3” ranking, the warehouse club was the only grocer to make the prestigious list, which ranks the top 30 most competitive companies in wRatings universe. Costco came in 6th place overall, up from its 8th place finish last quarter.

Beyond Profits: Meeting Customer Expectations

The ranking looks at much more than profit and loss to determine which companies are the most competitive. It examines companies’ ability to meet customer expectations. wRatings leverages its findings to inform investors and help executives make better business decisions.

wRatings believes that customer expectations, not any individual rival, are the number one competitor for every company and the key metric to predict sales growth and generate pricing power.

The Significance of Costco's Moat Score

To uncover the top 30, each company was awarded a Moat Score (0-100), which aligns with its ability to meet customer expectations. The scores factor in areas that impact performance and provide a deeper view of a company’s competitive strength compared to traditional net promotor and customer satisfaction scores.

In the ranking, Costco earned a Moat Score of 76.5, just 4.1 points off the pace of first-place finisher lululemon.

Costco's Resilience in a Post-Pandemic Market

Overall, the firm reports that consumers have shifted from discounters and standard retailers to full premium mode following the conclusion of the pandemic; however, Costco remains a favorite despite its cost-conscious approach.

According to mRatings “standards have lost considerable ground in their ability to meet customer expectations, but pricing power has not dropped as fast or as far. This may indicate that standards are coming back into favor, possibly due to the economic uncertainty ahead.”

As customer preferences swing back toward risk-free buying, Costco is well positioned to not only maintain its enviable market position but potentially improve upon it.

The Costco Way

As a club retailer, Costco relies on membership dues to keep it profitable and must continue to meet customer expectations for low prices and quality merchandise to ensure critical renewals. In the most recent quarter, Costco’s US and Canada renewal rates were 92.7%, up .1% from the previous quarter; worldwide, the retailer’s renewal rate stands at 90.4%.

“With a ~90% renewal rate, Costco is one of the few retailers to lock out rivals from poaching its membership community,” said wRatings.

Innovative Strategies: Costco Next and E-commerce Ventures

“To expand beyond just the warehouse shopper model, Costco has more recently ventured into white-glove delivery, e-commerce, and its Costco Next program that offers goods directly from its buyers.”

The Costco Next program allows shoppers to purchase directly from select brands at discounted pricing. The offering should increase the value of a Costco membership and keep renewals at industry-leading levels.

“We continue to grow [Costco Next],” Costco CFO Richard Galanti said on a recent earnings call with analysts. “We currently have 62 suppliers on costconext.com, and we're continuing to onboard additional ones in many product areas, from home improvement to apparel, to pet, to home and kitchen, to electronics and accessories, to sports and bicycles and toys and the like.”

Driving Costco's Revenue: A Focus on Customer Experience

wRatings points to four key areas driving Costco’s revenue and profits and contributing to a fulfilling customer experience: usefulness of products, straightforward shopping experience, customer safety, and the stability of Costco’s business framework.

“We typically don’t see such congruity between what a company says is their strategy and how customers view what is contributing to both their revenue and gross profits,” said wRatings. “This is an exceptionally strong company with its customer base.”

To learn more about Costco’s unique market position and the rest of the members of wRatings’ most competitive list be sure to check out the full report here.

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