Costco bulks up on sales to swing into the black

US discount retailer Costco has tightened its grip on the nation’s $90bn grocery sector.

Patrick Noone says Costco is witnessing strong growth from a number of categories within its stores. Picture: John Feder

US discount retailer Costco has tightened its grip on the nation’s $90 billion grocery sector after swinging to a profit in 2015 and nearly doubling its revenue to $1.32bn.

Australians are warming to its membership-based model and big-box warehouse stores with bulk food and merchandise deals.

Since arriving in Australia in 2009 to open its first store in Melbourne’s Docklands, Costco has racked up more than $3bn in revenue, representing food, grocery, general merchandise, liquor and consumer electronic sales that would otherwise have gone to Woolworths, Coles, and other established chains.

Along with fellow foreign retail invader, German discounter Aldi, Costco is flexing its competitive muscle in Australia after last month opening its eighth store in Australia, in the Melbourne suburb of Moorabbin.

It is set to open its ninth Australian store, in Sydney, with a 10th expected to be opened in the Melbourne suburb of Epping.

The latest financial accounts lodged with the corporate regulator show Costco Wholesale Australia has now rung up its third full-year profit result since coming to this country, posting a profit of $14.25 million for fiscal 2015. The result is against a loss of $8.58m in 2014.

Given its quick ramp-up of stores, it is carrying a lot of costs that has seen it post a number of losses on its Australian operations, but has now racked up a profit for three out of seven years of business.

Revenue for fiscal 2015 rose strongly, helped by the opening of new stores, to hit $1.32bn against revenue of $878.5m in 2014. At current turnover this translates to 1.5 per cent share of the nation’s supermarket industry.

It is believed more than 150,000 Australians have joined Costco as members since 2009, paying an annual fee of $60 to gain access to its huge warehouse stores that sell everything from fresh food and groceries to toys, clothing, electronics, diamond rings, sheds, alcohol and even ­coffins. Costco has also begun selling steeply discounted petrol at five of its stores.

Costco’s US parent, which has more than 500 stores in the US, Canada, Mexico, Britain, South Korea and Japan, has cited its Australian operation a number of times in earnings updates to US investors, describing it as one of its most successful overseas expansion stories.

Costco Australia chief executive Patrick Noone told The Australian it was witnessing strong growth from a number of categories within its stores.

“Fresh foods are doing really well, and actually some of the non-food categories as well, like household goods, household appliances are all doing well,” Mr Noone said.

He said the Costco model was proving especially popular among small businesses. Many picked up their supplies and other goods, to then resell, especially pubs, clubs and bottle shops with liquor.

He said Costco was monitoring prices weekly and across a basket of 160 items it had kept its price discount position for six years.

Earlier this year Costco said in its submission to the current Senate inquiry into corporate tax avoidance and minimisation that it had been given a low-risk status by the Australian Taxation Office and said it used no special arrangements for the purpose of local tax planning.