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UPDATE 1-Costco steps up grocery battle with new delivery services

(Adds details, analyst comments; updates shares)

Oct 6 (Reuters) - Shares in Costco fell more than 4 percent in premarket trading on Friday after the retailer reported a decline in quarterly gross margins and underlined the growing competition in the industry by launching new delivery services.

The membership-based chain on Thursday reported a quarterly profit which scraped past estimates and said it had rolled out two grocery delivery services this week, a new step in its efforts to fight growing competition from Amazon.com and Wal-Mart Stores Inc.

Chief Financial Officer Richard Galanti said in the company's post-results call that the firm had started offering two-day delivery of dry groceries as well as a same-day delivery service for groceries including fresh foods.

The two-day service would be free for online orders over $75 across the United States, while the same-day service - offered through its partner Instacart - is available at 376 U.S. stores.

BMO Capital Markets analyst Kelly Bania said the new offerings were a huge positive for Costco given the perception that it has been slow with its pace of digital transformation.

"(But) we also see risk these initiatives will weigh on margins over time and may be viewed as defensive," she said.

Shares in Walmart and Kroger, the leading U.S. grocery retailers, were also down around 1 percent premarket.

Groceries, while a low-margin business, brings more customers into stores, and major players including Wal-Mart and Target Corp have poured millions into the area as they look to boost store traffic as well as online sales.

Competition has further tightened since Amazon bought Whole Foods and reduced prices at the upmarket grocer in August, a move which has hit Wal-Mart and Kroger hardest in terms of lost customers.

Galanti said that Costco had not seen any impact from Whole Foods' price cuts.

"(Costco's) new online delivery initiatives improve its competitive offering and could drive increased engagement with millennials," Jefferies analyst Daniel Binder wrote in a note.

"Provided they don't simply cannibalize store sales, the stronger omni-channel effort could prove accretive to sales and EBIT dollars," he added. (Reporting by Sruthi Ramakrishnan in Bengaluru; editing by Patrick Graham)