Dive Brief:
- A new study from Dartmouth’s Tuck School of Business finds that people who shop at warehouse clubs — including Costco, Sam’s Club and BJ’s Wholesale Club — spend more time shopping, pay more for packaged food and consume more calories than those who don’t shop at clubs.
- The research shows that regular club shoppers spend 5% more on packaged food per person, which amounts to an increase of $3.50 per month. And they eat 3,500 more packaged food calories per person a month than they would if they didn't shop at a club store — which translates to 11% more fat calories and 5% more sugar consumed.
- "You think you're saving money and getting ahead, but it's not good for your health and it's not good for your pocket book," Kusum Ailawadi, Dartmouth professor and the lead author of the study told CNN Money. "We know that no matter how self controlled you are, when there is more in the home you consume more."
Dive Insight:
The warehouse club model is built on selling products in bulk at extraordinarily low prices, which for consumers typically means saving money on a per item or per ounce basis compared with shopping at conventional grocery stores. In fact, the latest JPMorgan price check that compares perishable groceries, dry goods and household items at Costco, Whole Foods, Walmart, Target and Aldi found Costco to be the least expensive option.
A recent LendEDU study found that Costco consistently beats Amazon on price, sometimes by wide margins. Items on Amazon, on average, were found to be 56% more expensive than the same products found at Costco. These kinds of cost savings are exactly the reason why shoppers are willing to dish out an annual fee to become club members.
But now, the new Dartmouth study provides additional, and somewhat contradictory, food for thought. Buying in bulk actually can result in over-spending and over-eating — not good for the pocketbook or consumer health. The figures stated in the study are rather staggering, too. The last thing America needs is to consume 11% more fat calories and 5% more sugar each month. These kinds of poor eating habits are what lead to such conditions as obesity, diabetes and cardiovascular problems.
This latest research reflect poorly on clubs, yet the results do not seem to be impacting sales at all — at least not yet. Sam’s Club comparable-store sales, excluding fuel, were up 2.8% in the third quarter compared with a year ago, driven primarily by a 3.8% increase in club traffic. The Walmart division cited strong performance in fresh meat, produce, bakery and prepared foods, as well as nutrition and protein drinks — none of which sound tremendously bad for one’s health as the Dartmouth study implies.
The world’s second-largest global retailer Costco continues to string together year after year of positive results. Its U.S. clubs recorded a comp-store gain of 3.7%, excluding gasoline, for its recently ended fiscal year in September. The main driver of store trips is its grocery offerings, which are superior in price, and feature an ever-growing assortment of organic items and fair trade produce.
Costco is recognized as the largest organic retailer in the world. Some analysts estimate that one out of 10 dollars in organic food sales are made at Costco. The company continues to innovate and regularly introduces new Kirkland Signature private brand food items with a strong emphasis on organics, such as its nut bars, protein bars, quinoa, raw honey, Greek yogurt and hummus. Both Costco and Sam’s Club outlets feature a vast array of fresh fruits and vegetables too, along with walk-in fresh produce coolers.
Consequently, to overcome any fallout from the recent Dartmouth research findings, clubs should increasingly promote their initiatives in fresh produce, health and nutrition, and organics.
On top of an already low-price image, this could also help convey the warehouse clubs' interest in promoting healthy eating, as well. It also could draw the interest of millennials, who are largely interested in healthy and organic food offers, and are migrating to warehouse clubs for the low prices and fun in-store experiences.