Dive Brief:

• Costco is bringing back its full sampling program and adding back in-store food court seating at all of its stores, Chief Financial Officer Richard Galanti said during the company's third-quarter earnings call on Thursday. 
• Sampling, which will include prepared items once again, will return to stores in waves over the next few weeks and will incorporate safety precautions like plexiglass barriers and smaller batches. Food courts, which have been running takeout-only service and a limited menu, will offer more menu items along with seating at half capacity. Galanti said Costco aims to have both services fully operating by the end of June.
• The fuller return of sampling and food courts underscores how rising vaccinations are helping consumers and retailers return to normal operations as summer approaches.

Dive Insight:

Costco's sampling and food court programs don't have a large direct impact on the company's bottom line, but they do round out the store experience that the club retailer relies so heavily upon and has been so eager to fully reinstate as pandemic restrictions lift.

After pulling its sampling stations last March, the club retailer implemented some stations that handed out pre-prepared products like crackers and cookies in individual containers that couldn't be consumed inside the store. 

Beginning next week, Costco will introduce sampling stations where workers will prepare items behind plexiglass barriers, in smaller batches than the retailer has traditionally allowed, and serve each item individually to customers, Galanti said. He didn't say what items Costco samplers will offer, but the company in the past has offered everything from meatballs to noodle bowls to passing shoppers.

Costco will add the revised sampling stations to 170 of its roughly 550 U.S. warehouses next week, and then introduce the program in additional store waves in the weeks that follow. Galanti said the company will be closely monitoring the first wave of samplings and will use it to judge how quickly to proceed with the rollout.  

Similarly, Costco's food courts are taking a major step toward normal operations. After paring back last spring to takeout service only on a limited menu that included pizza, hot dogs, soda and smoothies, the company earlier this year began adding back chairs and tables at stores that had outdoor seating space and adding menu items. By June 7, Costco plans to reopen nearly all of its seating areas at half capacity, and with social distancing measures in place, Galanti said. 

The company will add a few new menu items, like a "new and improved" churro and gourmet soft-serve ice cream to food courts over the next several weeks.

Costco's service updates come as restaurants across the country reintroduce seating and retailers allow vaccinated customers to go maskless in their stores. Grocers have also revived self-service bars and begun reopening seating at store restaurants. According to the Centers for Disease Control, nearly half of the U.S. population has gotten at least one dose of a COVID-19 vaccine.

Costco's store traffic has returned to normal levels as 2021 has advanced, according to data from Placer.ai. That's welcome news for a club retailer that relies on in-person shopping trips. E-commerce sales have moderated as a result, though at 38.2% growth in the U.S. during Q3 were still well above historic levels. Galanti estimated same-day service through Instacart was running five times above normal levels compared to the 10-times sales rate it saw a year ago. He noted the online service has helped Costco add young shoppers to its membership rolls.

"When we look at new member sign-ups currently versus a year ago, versus two and three years ago, we still are getting our share of younger people, maybe a little younger than that right now, simply because of [e-commerce]," Galanti said.

Galanti said the company is feeling the impact of inflation, estimating prices are up 2.5% to 3.5%, but said it hasn't been impacted any more than competitors. He called out higher costs for imported cheese and noted that meat prices are up 7% year-over-year while beef prices have been up as high as 20% over the past month.

For the third quarter, which ended ended May 9, Costco reported comparable store sales growth of 15.1%, excluding the impact from fuel sales and foreign exchange. Net sales for the quarter increased 21.7%, to $44.38 billion, compared to $36.45 billion during the year-ago period.