Walmart and Costco are both giants in the supermarket industry. No matter where you are in the United States the chances are that you have both available somewhere near you. But where should you do your grocery shopping or which is the better option if you are in the stock market business.
When it comes to purely grocery shopping Walmart is obviously better than Costco. They offer much better offers and have so many branches throughout the United States that finding one nearby is of no concern at all. But when it comes to investing in stock and making a profit, Costco might be the better of the two.
The result of the Walmart vs. Costco battle is not black and white. In this article, let’s take a look at the differences between Costco and Walmart. In doing so, you may find the answer to which is better for you as a business investor and as an average grocery shopper.
What is the Business Model of Walmart?
The business model of Walmart depends on its effective “everyday low prices” pricing strategy and inventory management. The company provides a broad assortment of products to all customers at any time and place, thus giving it an omnichannel presence.
The business model of Walmart operates in three primary units. These are Walmart US, Walmart International, and Sam’s Club.
Supermarkets, discount markets, and neighbourhood markets are other subunits of Walmart. It also launched an aggressive e-commerce campaign to combat Amazon and retain its omnichannel persona.
The “everyday low prices” pricing strategy of Walmart attracts customers from lower and middle-income families. The exclusive warehouse membership at Walmart’s unit Sam’s Club also brings in higher-income customers. Plus, the EDLP strategy, a wide range of assortments, and availability of Walmart stores ensures customer presence at all times.
The EDLP strategy is sustained by the effective operating model of Walmart. The company tries to keep its operating expenses at a minimum by lowering its inventory and distribution costs.
Walmart includes other cost-saving practices such as Savings Catcher, Save Even More, and Ad Match. This programsets product prices lower than their competitors' advertised pricing to attract more customers.
Walmart operates by getting rid of the middleman. They buy wholesale goods straight from the producers. Thus enabling them to directly sell the products to customers at lower rates.
Moreover, the company owns warehouses to sell and store products in bulk. Thus, they also earn by becoming a bulk distributor.
In recent years, Walmart has invested millions in technology and investment. Thus attracting a whole new segment of customers. Tech-savvy and customers from higher-income families are online shopping from Walmart.
Moreover, during the pandemic, Walmart’s revenue from its websites skyrocketed. In the third quarter of 2021 fiscal year (which ended in October 31, 2020) the e-commerce sale of Walmart increased 79%. Thus, the company’s investment in e-commerce has come to fruition.
What is the Business Model of Costco?
Costco has a membership-based wholesale business model. The membership-based warehouse chains of Costco created a strong customer base by offering products in bulk to its members at lower prices.
Costco offers two types of memberships, standard, and executive. The standard Costco cardholder has to pay 60 USD annually for membership.
Executive cardholders have to pay 120 USD annually. Executive members receive various discounts and rewards for different Costco services. For example, executive cardholders will get an annual 2% cashback reward for their purchases and various discounts on medical, dental, auto and home insurances.
Exclusivity and low prices are not all that customers get from Costco. The success of Costco depends on its effective Human Resource management, and good customer service. As a customer, if you call the customer service of Costco regarding order details or any other issues, you will get complete transparency and straight answers.
Since Costco focuses on work satisfaction, the employees there are highly motivated and sincere. The employees can handle customer questions because they are aware of the warehouse inventory well.
Costco is different from the usual big-box retailers as it sells products in a bulk directly to the average consumer. Thus, the set-up of the product inside the warehouses are also very different. Along with this, the superb customer service ensures that customers have a distinct and pleasant shopping experience at Costco.
The lower prices of bulk goods at Costco is done without cutting back on employee salaries. Costco pays its staff better than other supermarkets. Hence, the staff are highly motivated and ensure good customer service.
The business model of Costco along with the good customer service ensures customer satisfaction and renewal of membership. In the USA and Canada alone, the Costco membership renewal rate was 90%. The membership fees alone brought 3.35 billion USD to the company in 2019.
Major Differences between Walmart and Costco
From business models to the size of both businesses, there are various differences between Walmart and Costco. The major differences between Walmart and Costco lie in their business models. But before we dive into their differences, let’s take a look at the similarities between Costco and Walmart.
Both Walmart and Costco are big-box retailers that depend on cost-saving practices to get a market advantage. Both brands procure their products in bulk and reduce profit margins to keep operating expenses at a minimum.
Business Model
Although both Walmart and Costco incorporate cost-saving strategies, Costco like other US-based retailers does not include the EDLP pricing strategies of Walmart. Moreover, Costco is a membership-based warehouse, and Walmart is a walk-in supermarket.
Product Sales
While Walmart and Costco both source their products directly from manufacturers, Costco sells products in bulk to customers. On the other hand, Walmart sells individual products to customers. Only in Sam’s Club Warehouse, of Walmart, customers can buy products in bulk.
Diverse Range of Products
Since Costco sells in bulk, it does not have a wide range of products in comparison to Walmart. That is, you will not find that many different brands on the same products in Costco. For, example you can get ten different brands of coffee in Walmart, but in Costco along with Kirkland Signature House Blend, you will only find a few other coffee brands. So, if you want a diverse range of products, head over to Walmart.
Employee Work Satisfaction
Costco has better human resource management than Walmart. Since its inception, Costco values its employee contribution and offers a pleasant work environment to maximize worker satisfaction. On the other hand, the cost-cutting strategies of Walmart affected the wages of its employee. But at present Walmart has taken several initiatives to ensure work satisfaction.
Larger Footprint
Walmart has a larger global footprint. Costco has 785 warehouses in total, out of which 546 are in the US. In contrast, Walmart has a whopping 11,501 stores in total. From Botswana, Chile, India to Ghana, South Africa and Zambia, Walmart has 6163 stores internationally.
Customer Base
Walmart has a larger customer base than Costco. In 2020, 105 million people paid for the Costco membership. On the other hand, along with international and online stores, Walmart is visited by over 265 million customers each week, worldwide.
Which is Better for Grocery Shopping?
When it comes to grocery shopping Walmart is objectively better than Costco. The varied arrays of the same assortments and a convenient shopping experience make Walmart better for the average grocery shopper.
The set-up inside Costco gives a treasure-hunt vibe. But the average grocery shopper who is in a hurry will find the placing of the fresh produce section at Costco inconvenient.
You will find the fresh produce section near the entrance at Walmart. Thus, you will find grocery shopping more convenient there.
Costco presents huge quantities of the same branded products but not much variety. You will have a hard time looking for a certain brand of cookies or spices in Costco. But in Walmart, you will face no such problem. You can explore aisles and find many name-brand products.
From deli-style ham to cold cut beef platter, you will find it all in Walmart. In Costco, there is a large meat and poultry section. But in Costco, there is no hot food buffet section along with the meat section like that of Walmart’s.
Both Walmart and Costco offer products at low prices in comparison to other retailers. But as Costco sells goods in bulk, the overall pricing there is less than Walmart. For example, the cost of milk, cheese, and mayonnaise, is less than that of Walmart. 2 gallons of milk cost 5.99 USD that is 3 USD per gallon, which is more than one-gallon milk at 3.16 USD in Walmart.
The average family size in the US is 3 or 4. If you are shopping for an average-sized family, you can shop at Walmart. If you have a large family and need to buy groceries in a bulk, then shopping at Costco will be more convenient.
If you are stocking up on groceries for months or shopping for a party at home, then shopping at Costco is worth wise and cost-effective. If you are grocery shopping for the week then Walmart is the better option of the two. All in all, for the average person, grocery shopping at Walmart will provide a better experience.
