# CostCo and its effect on Coles and Woolies



## nth brisbanite (5 January 2009)

The giant American retailer CostCo will begin trading in Melbourne (Docklands) sometime this year.  From all my research, it is extremely popular in USA where for a yearly subscription of about $US50, consumers can buy just about anything (ie groceries, petrol, electronics etc) at amazing prices.  

How do you think that its entry will affect Coles (Westfarmers) and Woolies?  Their plan is to open up to 5 stores in the next few years.


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## sam76 (5 January 2009)

I reckon their immediate concern would be the ALDI invasion.
Has anyone else shopped there? 
Talk about cheap!! (and the quality's good as well)


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## gfresh (5 January 2009)

I can't see how it will be that successful here.. I think I read an article on them once, and they seemed to be just a warehouse with rows and rows of various goods stacked high. Seemed pretty nasty and soulless, e.g. Bunnings. 

We already have plenty of cheap and nasty discount stores that are pretty well established here, whereas in the US they helped establish that sort of market, along with Walmart. 

The location seems a bit strange to me, would have though inner city would be catering to more of a premium market, rather than bargain shoppers. 

Then again, a few years ago when Aldi launched, I didn't think that would be too successful in Australia, but it seems to be quite popular (not a fan myself).

eww...


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## Nyden (5 January 2009)

Gfresh, considering the hefty discounts on products on offer there, I hardly think the warehouse atmosphere will deter shoppers. In fact, I believe this atmosphere will actually aid in encouraging shoppers to spend!

The savvy shopper looks only for quality products, not quality products served on a silver plate. After all, it's not like we get to keep the store front


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## gfresh (5 January 2009)

I guess my main question would be what sort of "crazy bargains" they will be offering, and whether they'd be any different from your standard bunnings/warehouse group/crazy clarks/target/reject shop/campbells cash carry/aldi type store? Surely they will be just dealing with the same sorts of supply lines as these stores also?

Is your $40 DVD player really going to be that much cheaper at Cost-Co ? Are they able to offer that extra level below that ?

Anyhow, just postulating here


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## So_Cynical (5 January 2009)

I think the location (docklands) for the first store is seriously flawed, 
since when has bulk discount shopping been an inner city attraction?

I cants see the bogans of the great south east, traveling 35+ Km's for 
cheap, bulk shopping in the city....and paying tolls and parking.

However will admit Melbournians do like to shop, and they like a big 
market type atmosphere.


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## son of baglimit (5 January 2009)

i know my wife is keen to establish some form of friends group and share in the discounts that will apparently become available. 

100 loo rolls for $10, rather than in separate packs totalling $30, as an example.
we are about to start the same thing for the meat & fish wholesale markets (not vic market) in nearby footscray (actually between footscray & docklands) where an early morning trip twice a year by each couple will serve the needs of the entire group.

only requirement to join is having a deep freezer, cos we aint buying '2 pieces of rump' - it'll be in minimum 2kg lots, after buying 20kg initially.


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## Julia (5 January 2009)

sam76 said:


> I reckon their immediate concern would be the ALDI invasion.
> Has anyone else shopped there?
> Talk about cheap!! (and the quality's good as well)



Maybe Aldi in your part of Oz is better than in Qld.   I've found the fresh produce in the local Aldi to be anything but fresh and it's all pre-packaged so you can't select your own.   Often they have only four or five fruit items and the same in vegetables, whereas Woolies will have at least 20 of each and it will all be top quality.

I hate these barn like places.  They also understaff the checkouts so you have to stand in a queue for ages.

No thanks, I'll stick with the supermarkets where there's good quality and some service.


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## doctorj (5 January 2009)

Julia said:


> Maybe Aldi in your part of Oz is better than in Qld. I've found the fresh produce in the local Aldi to be anything but fresh and it's all pre-packaged so you can't select your own. Often they have only four or five fruit items and the same in vegetables, whereas Woolies will have at least 20 of each and it will all be top quality.
> 
> I hate these barn like places. They also understaff the checkouts so you have to stand in a queue for ages.
> 
> No thanks, I'll stick with the supermarkets where there's good quality and some service.



I guess quality does vary from store to store.  I was in a Woolworths store a week ago to pick up some fruit and veg. I'm not the pickiest person around, but the standard was bordering disgusting.   Every tomato felt like  a sponge, the capsicum was so shriveled, it could have been a large oddly coloured prune and every lettuce I picked up was as crispy as a soggy biscuit.

Hardly the fresh food people!


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## chops_a_must (5 January 2009)

Julia said:


> No thanks, I'll stick with the supermarkets where there's good quality and some service.




Always pictured you as a butcher type woman Julia. :

Have a fantastic butcher and grocer on my usual bus route. Go to an IGA for the rest. Works great for me. Just can't beat the quality, and the prices really are not that much more at all.


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## son of baglimit (5 January 2009)

Julia said:


> No thanks, I'll stick with the supermarkets where there's good quality and some service.




i tell ya julia, maybe the chains have better quality fruitnveg in qld, cos down here in melb, unless you use an A GRADE class safeway or coles, the quality can be quite poor. near me there is B GRADE of both, and they do well from the normal groceries, but theres also 2 fruiterers nearby, and they do a roaring trade, cos they dont concern themselves with price, just quality - and then in the last 2 hours of the day, the bargains are there for whats left.
the queues in the chains have little or no fruitnveg in them, as so many folk simply cross the road and buy the fresh stuff there. safeway & coles wont learn, continuing to try to sell B GRADE produce, as their store rating requires.


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## Mr Capital (5 January 2009)

So_Cynical said:


> I cants see the bogans of the great south east, traveling 35+ Km's for
> cheap, bulk shopping in the city....and paying tolls and parking.





What about the 'bogan's' of the WESTERN suburbs. ???
but I'm sure it would seem quite attractive to some suburbs close by


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## Julia (5 January 2009)

chops_a_must said:


> Always pictured you as a butcher type woman Julia. :



Ha, really?  Actually I eat so little meat I'd send any butcher broke.
Give me a good fishmarket any time.




son of baglimit said:


> i tell ya julia, maybe the chains have better quality fruitnveg in qld, cos down here in melb, unless you use an A GRADE class safeway or coles, the quality can be quite poor. near me there is B GRADE of both, and they do well from the normal groceries, but theres also 2 fruiterers nearby, and they do a roaring trade, cos they dont concern themselves with price, just quality - and then in the last 2 hours of the day, the bargains are there for whats left.
> the queues in the chains have little or no fruitnveg in them, as so many folk simply cross the road and buy the fresh stuff there. safeway & coles wont learn, continuing to try to sell B GRADE produce, as their store rating requires.



Interesting, Son of B.   Here there have been fruitshop after fruitshop come and go.  Same with butchers.   These small retailers just haven't matched Woolies for quality or price, so they don't get the patronage, and last about five minutes.

Some people do go out to the local farmers' markets early Sunday mornings.
Too early on a Sunday morning for me.


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## nth brisbanite (5 January 2009)

Below are some of the comments about CostCo when it was announced that it was opening stores in Australia.  I've been wondering why Woolies share price dropped so low in July 08.  Is it a coincidence that it was about the same time as the announcement of the opening of CostCo?

After reading the below comments I'm convinced that CostCo could be a threat to the duopoly.  Please don't compare Aldi with CostCo - they are poles apart!!!

*By MMills @ Thursday, September 04, 2008 2:13 PM  
Yeah!! I can hardly wait for Costco to come to Australia.. and even better if they park the first one in Melbourne! I'd be willing to drive the distance from Geelong, where I live, to Melbourne just to shop at Costco!! I moved to Aus 10 yrs ago from the states and was surprised to find that Aus didn't already have such stores! It will not only provide savings and variety.. it will also force the other retailers who are selling goods way over priced to rethink their prices!

Coles, Woolworth and others should brace themselves - they only thought Aldi's was competition.. Their biggest competition is Costco..  



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 By Jamie Koenig @ Monday, September 08, 2008 6:48 PM  
I think it's great Costco is coming to Australia.

I think all the people that think this is a bad idea are ignorant. SCREW SMALL BUSINESS!

Bring on the big box companies!  



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 By Denise Harper @ Tuesday, September 09, 2008 7:32 PM  
I can't wait for Costco to come to Australia, hopefully Sydney first... My husband and I shopped in Costco in the US in Feb and its just fantastic. They have great deals and a huge variety of items. Come on Costco to down under....  



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 By Dean @ Thursday, October 09, 2008 10:59 AM  
I am excited and can't wait to see it come to Melbourne, i just hope they build a store in on the Mornington Peninsula which will be easier access for alot of the population here. I most certainly will join up Costco. It's just so hard to get the stuff you need in bulk around here. So thank you Costco.  



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 By Lynnette @ Saturday, October 18, 2008 9:54 AM  
I'm so excited about Costco coming down under. As soon has I heard I wanted to move to Melbourne. I live in Sydney so Costco hurry up build one up here! I'm tried of the Auzzie getting ripped off!! We need variety & good product at a great price. I've lived in the US and can not say anything bad about Costco. I can't wait to save some $$$, Look out Woolies & Coles.The BIG BOX is coming!!!! It's time the consumer wins!!  



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 By Sarah @ Tuesday, October 21, 2008 2:07 AM  
I cannot wait for Costco to arrive in Melbourne...I already have a list of items I would love to buy from there!! I will be its founding member - lol. I have been to Costco in the US about 3 times in the last few years - and I was blown away by it. The variety is amazing. From food, clothes, electrical, medications, glasses, phones, cars, holidays and much, much more! I just hope we have the same variety of products when it comes to Australia. I think Costco will bring competion into Australia, that has been long overdue. Paying the membership fee is no problems, the low cost of the products available far outweighs having to pay a membership. And if I remember correctly, in the US if you are unhappy with being a member/want to cancel your membership then they will refund your membership fee. Also the returns policy in the US is like one we have never heard of!...Costco - I'm counting down until you open!




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 By darren @ Saturday, October 25, 2008 8:12 PM  
Costco sounds interesting as a retailer, anyone know a contact for the managment office set up in melbourne.
Does anyone know what they are like as employers ???. 





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 By Ashley Kerrigan @ Thursday, November 06, 2008 9:52 PM  
I am actually hoping that Costco bring American products as well as Australian - Campbell's Cash and Carry is a poor substitute for wholesale and as an ex-pat American, would love to see some products easily available rather than paying whopping prices from American shop in Melbourne!  



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 By Eric @ Tuesday, December 09, 2008 1:39 PM  
If you get US products it will be the end of many Australian retailers. I can't see how a place like Harvey Norman will survive what Costco is going to bring downunder.  



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 By Nell @ Wednesday, December 10, 2008 3:34 AM  
As an Aussie living in Japan, I am a 150% Costco convert. I am very excited about the Gold Coast store opening and so are my parents - they loved the Costco near us when I took them. I am on my 3rd year of membership... and it is an hour drive for me to get to the store, but I am there once every 2-3 months.

The first time I went I lived in the the city and had no car.. by the time I paid for our return trains/cabs and also shipping of non-perishables it cost me $70 - but visiting Costco saved me TWICE that amount. I can buy Australian beer at Costco Japan cheaper than my dad can buy it at the local bottle shop in Oz!  



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 By Mara Servat @ Saturday, December 20, 2008 10:45 AM  
I'm thrilled to learn that Costco is coming 'down under'.

I'll love to shop at Costco. We've been waiting for this for years. We absolutely need this in Australia.
The supermarkets we have here are BORING, they offer always the same products, same sizes, same prices no variation from Coles to Woolworths.
Going groceries shopping is really a pain.
WELCOME COSTCO!!! I'm looking forward to have you here! *


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## dalek (6 January 2009)

While the "club shopping" format of Costco will be a new experience to Oz retail, the effect on Coles/ Woolies will be most likely mitigated by Costco's inability to reach critical mass quickly due to availability of suitable locations.
The choice of Docklands does seem odd but their model is about destination shopping rather than the more traditional convenience models.
With average margins of around 9% on all goods they will offer significant savings to members prepared to buy the bulk commodities and cherry pick their end of run and closeout merchandise offers.
I understand the average basket value of costco customers is about 10x that of say Kmart, Bunnings or BigW which gives some indication that customers will travel to buy.
Big barn retail shopping doesn't suit everyone, but it does work and Costco will suck up their share of retail dollars.  

The more present threat to Coles / Woolies in my view, is Aldi who have established 170+ stores and a number of large distribution centres across the country in a very short time.
Their abbreviated range, merchandise flexibility and value offer has customers flocking to their usually, well located stores. 
With their smaller footprint stores, finding locations is far less of a problem than the big barns. Coles new strategy of home brands and range reduction is a less radical version of this philosophy and if successfully implemented will put Woolies under huge pressure over the next 2-3 years as well so expect some changes in the fortunes of our traditional retailers over the next couple of years.
Sure, we can all complain about service, fruit n veg quality, etc but we also pretty comprehensively think McDonalds is crap, but who doesn't buy the stuff?


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## AS414 (8 January 2009)

The location choice in Docklands is not quite as strange as it seems.  

It is very, very close to the Western Suburbs and also the Bolte bridge exit (so anyone coming down the Tulla from the North, has one of the bigger carparks in the CBD and is not that far from the DFO (Direct Factory Outlet) complex at Spencer St station (and actually not that far from the Essendon Airport one given the Tulla access).

As said above, the business model is all about "destination shopping" (i.e. come in and buy in bulk).  Costco has a pretty successful record on the international front - they are in Canada, Mexico, UK, Korea, Japan, Taiwan and a reportedly considering France, Spain and India


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## knocker (8 January 2009)

sam76 said:


> I reckon their immediate concern would be the ALDI invasion.
> Has anyone else shopped there?
> Talk about cheap!! (and the quality's good as well)




I agree. coles and safeway are crap. And there stores are empty.
Too expensive, inferior quality and service. Good to see compettiors.

Anyone know if LIDL is here in Aus. they are even better than Aldi.


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## Julia (8 January 2009)

dalek said:


> Sure, we can all complain about service, fruit n veg quality, etc but we also pretty comprehensively think McDonalds is crap, but who doesn't buy the stuff?



Never eaten McDonalds in my life and don't plan to start.


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## merchant (8 January 2009)

As a food retailer who spent some time in the states last year to look at the likes of Costco, Trader Joes, Walmart etc I can absolutely guarantee that Costco will be a huge success here. It is one of the most exciting retail concepts to visit in the states. 

Interestingly it is not the "Bogans" who shop there. the average houshold income of a Costco member is well over $100k. that explains why they were selling Dom Perignon when I was there (at $99 btl). they are also the biggest reatiler of diamond rings in the US I believe.

it will certainly have an impact on Coles and Woolies but also Kmart and Big W - and bunnings for that matter.

the store size will certainly inhibit the speed of growth but it is a destination shop and people will drive for miles to get to it.

With respect to catchment requirements - consider that there are 3 in Las Vegas - Population approx 1.8M.

Costcos big stores turn over more than $300m per annum - not many retailers who want that sucked out of their revenue pipeline!!


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