All go at Costco as sales hit $2bn

Costco, the US warehouse supermarket, is emerging as a powerful force in the nation’s $90bn grocery sector.

Costco Australia managing director Patrick Noone.

Costco, the US warehouse supermarket that sells everything from chocolate to coffins, is emerging as a powerful force in the nation’s $90bn grocery sector as it strips market share from supermarkets and discount department stores to fuel its impressive double-digit sales growth.

Despite operating out of only 11 warehouses in Australia, with its 12th to open early next year in Perth, Costco is building momentum in the region and in 2019 punched through the $2bn annual sales barrier for the first time, as it joined with Aldi to pose a significant challenge to Woolworths and Coles.

Its success in Australia has seen Costco’s sales growth accelerate in recent years from a 14 per cent rise in 2018 to an 18 per cent improvement for 2019, showing the warehouse format that requires shoppers to pay an annual fee is becoming an established fixture of the retail landscape.

Latest financial documents lodged with the corporate regulator show Costco Wholesale Australia posted sales ot $2.159bn for the 52 weeks to September 2019, up from $1.822bn for 2018.

The 18 per cent surge — which includes grocery and general merchandise sales as well as its annual membership fees — comes against a backdrop of many supermarkets fighting to maintain low single-digit sales growth.

Costco’s sales in Australia have almost risen fourfold from 2013 and are up more than 30 per cent since 2017.

However, from its 11 stores, Costco’s profit for 2019 was down to $25.5m from $29.5m, according to its financial report lodged with the Australian Securities & Investments Commission.

Since its launch in Australia in 2009 when it opened its first warehouse store in Melbourne’s Docklands, Costco has taken in nearly $10bn in sales, snatching market share from a range of rival retail formats including general merchandise stores, clothing and consumer electronics.

Costco Australia local boss Patrick Noone told The Australian the retailer had experienced a strong sales uplift across the board, with the opening of a store during the period also bolstering revenue.

“Electronics, apparel and fresh foods are doing very well for us at the moment,” Mr Noone said.

He said Costco had been vigilant to maintain its price gap with Woolworths and Coles during the year. “We have maintained that gap, that’s for sure, but the dynamic is we have a much lower cost of doing business and that shows in our pricing.’’

Costco was planning to open more stores in Australia, potentially in Brisbane and Newcastle, while a maiden store in New Zealand was also being investigated.

Costco chose not to match the popular collectables promotions run by Woolworths and Coles, with the warehouse format store relying on its competitive shelf prices and model of selling grocery items in bulk.

Costco charges shoppers an annual membership fee and sells groceries and general merchandise in bulk, including such categories such as groceries, seafood, wine, petrol, hearing aids, wedding rings, tyres, coffins, clothing and toys.

In recent years Costco has also branched out into online shopping, launching a pilot program for online deliveries for businesses based near the Melbourne CBD.

With a minimum order of $1000 and delivery within a 10km radius of its Docklands store, the service marks a new push to capture a greater slice of the wholesale grocery market by selling bulk fresh groceries to cafes and restaurants.

Some analysts believe Australia could support more than 20 Costco stores, while a fresh assault on the grocery sector will be made next year with the arrival of German supermarket and general discounter Kaufland.