Some businesses do well in uncertain times. Costco should be one of them
With consumer confidence in the doldrums and the price of everyday staples continuing to increase, value is on consumers’ minds. Buying in bulk and doing it on the cheap looks pretty appealing right now, which is a perfect situation for Costco. Some businesses do well in uncertain times, and Costco should be one of them. For the uninitiated, Costco membership costs $60 a year. The chain sells everything from bulk food to furniture and electronics. The US chain has 13 Australian stores
stores – four in Victoria and NSW, two in Queensland and one each in South Australia, Western Australia and the ACT. There are plans to open seven more warehouses over the next five years, taking the national total to 20, and it just opened its first store in New Zealand in September.
In January, the business reported sales for the previous year of almost $3 billion, putting it ahead of local retail giants Myer and Target. It was a 9.6 per cent jump in sales for Costco for the 12 months to August 2021 but it pales in comparison to Woolies, which made $67.3 billion in sales and Coles, at $38.6 billion, during that same period. Unsurprisingly Aldi’s 2020 sales also far exceeded Costco, at $12 billion.
Given Coles has more than 800 stores across the country, Woolies has more than 1,000 and Aldi has upwards of 500, Costco has some way to go to take on the giants. That said, the numbers are surprisingly good from so few stores.
Still, as interest rates continue to rise, Australians are feeling the pinch on their wallets and when they’re given the opportunity to shop at discount outlets like Costco, there’s a very real risk to the established players. You’d have to describe the discounters as a sleeping giant in the Australian retail scene – not just food and grocery.
Clearly, the established players in the Aussie market are watching carefully as Costco progresses to 20 stores. The relative success of Aldi will have the big guys extra wary about what could be described as an Aldi on steroids, with the added bona fides of selling real brands.
You have to wonder if this is still a well-kept secret. Amid the current economic conditions, will people find this not-so-small gem as they seek more ways to make the dollar go further?
There is certainly plenty about Costco that tells consumers it’s cost-friendly. Bulk buying screams value, for one, but so does shopping in a no-frills warehouse environment. This very aesthetic has been fuelling JB-HiFi to great success for many years.
Supermarket challenger IGA certainly thinks there’s something in it. Last month, IGA opened Supa Valu, a budget supermarket chain where customers shop from pallets instead of shelves in a low-cost environment. The first store opened in the Melbourne suburb of Delahey. Two more are expected in New South Wales’ Doonside and Ballina.
What stands in Costco’s way
Of course, Costco is not without its challenges in taking a larger share of the grocery pie. The first being its paid membership, which many will see as a barrier to entry.
There’s also a perception that stems from the old Campbells Cash & Carry that warehouse-style retailers do business only with other businesses. That could be holding back regular mums and dads for the wrong reason.
The bottom line is Costco needs to communicate to the market more widely about how its tiers of membership work, and why the price is worth paying. Chances are you’re going to save more than $60 on your first shop but you won’t know that unless someone tells you.
The other barrier is bulk buying. Where are you going to store 48 rolls of toilet paper or a 12kg bag of flour? With the right consumer education, we could see the rise of ‘syndicated shopping’, akin to syndicated betting, in which families pool their needs to share the large minimum volumes that may be a current detractor for some. After all, necessity is the mother of invention.
As Costco continues to open more stores, dismantling these barriers will be the most powerful first step in recruiting new customers beyond what the brand might get from word of mouth or member-get-member initiatives.
There has never been a better time to show regular families struggling to balance a budget how they can save a bundle of cash.
In the current economic climate, Costco’s 13-store footprint leaves a lot of demand un-serviced, so I reckon there are going to be plenty of eyes on them as they up that number.
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