Costco eyeing off three new stores in Victoria as it ramps up Australian business

US retail giant Costco rakes in almost $3bn a year in sales in Australia from its mix of groceries, clothing, electronics and even coffins – and it now wants to ramp up its store count.

Costco Australia boss, Patrick Noone, who is planning three new stores for Victoria as he looks to take more market share from retail heavyweights Wesfarmers, Woolworths and Coles.

Costco will invest as much as $150m in opening three new stores across Melbourne and Geelong over the next two year as it takes the fight to Woolworths and Coles and battles for a greater share of the $120bn-plus groceries and general merchandise sectors.

The chief executive of Costco’s operations in Australia, Patrick Noone, said the US retailer had identified land for its 17th store in Officer, southeast of Melbourne, and a potential site just west of the Melbourne CBD and a third in Geelong.

“We are growing quite nicely, and Melbourne is a big city, it is growing faster than any other and for us business isn’t slowing down in Melbourne,” Mr Noone said.

“Melbourne is a growth area and we’d like build there as soon as we get the approvals.”

Mr Noone said the groceries and general merchandise discounter had also been hit by inflationary pressures running through the economy – led by transportation charges and the rising cost of some fresh produce – and lifted some shelf prices.

But Costco would remain vigilant to protect its positioning as a cheaper alternative to its competitors including Aldi, Target and Kmart, he added.

One strategy to combat inflation has been to lift its bulk pack sizes to squeeze out efficiencies and cost savings, but the retailer has also struggled to secure fruit and vegetables as well as some merchandise such as clothing.

Mr Noone, who has led Costco in Australia since it opened its maiden store in Australia in 2009 in Melbourne’s Docklands, said the investment in three new stores for Victoria would represent about $50m per new store, taking to $150m its total investment commitment, with Costco keen to hit a run rate of about one new store opening per year.

Mr Noone said he was not put off by statistics showing Melbourne had lost large populations to other states such as Queensland during Covid-19 lockdowns, with Costco seeing plenty of growth in the Victorian economy.

The warehouse retailer – known for its large and eclectic mix of goods from fresh food and groceries, to meat, diamonds, consumer electronics, clothing and coffins – has proved popular and last calendar year recorded revenue of just over $2.82bn, drawn from its then 13 stores and burgeoning online platform.

However, its retail sales were bruised by lockdowns in 2020 and 2021, especially the more strict lockdowns in Victoria that placed heavy restrictions on travelling within Melbourne.

With only four Costco stores in Melbourne, including one in the CBD and another operating from an industrial park at Moorabbin Airport, the retailer was a “destination shop” and had built its strategy on members travelling long distances to shop at the store.

Costco operates a membership program where shoppers and businesses pay an annual fee to shop at its stores. It is believed membership in Australia has surpassed 200,000.

Mr Noone said inflation continued to be an issue and, like most other supermarkets and general merchandise stores, Costco was facing elevated business costs.

“Fresh food price increases are being driven by labour shortages and transport, so there’s not really any percentage because the prices go up and down, but certainly with vendors and suppliers trying to find just transportation it does cause price rises and particularly with transportation bottlenecks around the world,” he said.

Costco Australia’s latest results showed that for the 52 weeks to the end of August, revenue jumped to $2.8bn, from $2.6bn in 2020. A fast-growing online store helped to double its profits as net profit hit $46.39m in 2021.