Another day, another whiff of rumour that a big-box FMCG retailer is considering launching in New Zealand. Forget Ikea: this time, it’s Costco.
Costco’s success across the ditch has raised speculation that the US big-box retailer may be eyeing New Zealand. Retail X founder and retail strategy director Juanita Neville-Te Rito agrees that rumours about Costco and Ikea entering New Zealand tend to pop up every two or three years, but that doesn’t mean this lot are necessarily untrue.
“It’s entirely plausible for Costco to give New Zealand another crack,” she says.
First Retail Group chief executive Chris Wilkinson says he understands Costco has been scoping sites and will be in the New Zealand market within the next few years.
A Costco representative says it's company policy to not comment on future Costco stores more than three months ahead of opening day.
Costco is a ‘membership warehouse club’ that charges shoppers an annual fee in exchange for access to its deeply-discounted products. Individual or business memberships in the US start at US$60, and in Australia it’s about the same.
It stocks a staggering variety of goods. Bulk FMCG products are its bread and butter – think 3kg buckets of Nutella - but it also stocks all kinds of consumer goods from categories across the length and breadth of retail. There’s tyres, pool chemicals, vacuum cleaners, stand-up paddleboards, office furniture, laminate flooring, mattresses, televisions, package holidays. The sky’s the limit.
In the financial year ending September 3, 2017, Costco’s total sales worldwide were US$126.1 billion. It entered Australia in 2009 and according to Forbes, its Australian business accounted for around 5 percent of the company’s total international revenue in 2016. It now has nine Australian stores with three more slated to open soon – Wilkinson says Costco plans to open two “very large format sites” per year.
Neville-Te Rito says The Warehouse Group’s sluggish recent performance and the duopoly currently active in New Zealand’s grocery sector has left our biggest relevant retailers open to being undercut by Costco.
“ This is a duopoly market and Costco loves nothing more than asking ‘Could this be less expensive for the customer?’ In a duopoly, one might suggest the players only go as low as they both can make a reasonable profit.”
She says Costco can also be expected to have good terms of trade with suppliers in Australia, so it would likely be able to transfer these to New Zealand in much the same way as Woolworths has without difficulty.
Neville-Te Rito compares Costco’s model to that of another recent arrival, Chemist Warehouse, saying it is likely to appeal to both potential employees and “our incredibly price-conscious” market.
Massey University professor of retail management, Dr Jonathan Elms, says Costco has been operating in Australia for nearly 10 years and is performing well. He says an entrance into New Zealand would be a sensible move for the big-box retailer.
Like Neville-Te Rito, Elms expects budget-savvy New Zealand shoppers to welcome Costco if it does arrive on our shores: “New Zealand’s consumer culture is very much discount oriented and I think Costco fits with that.”
However, Elms says the big-box style of retailing isn’t working as well as it used to overseas, and many big-box retailers are going under. Any interest Costco may be showing in New Zealand could stem from the fact that its big-box proposition is still current on our shores and Kiwis remain enthusiastic big-box shoppers.
Kiwis have lately been looking to Aldi to slide into the New Zealand grocery sector to challenge Foodstuffs and Progressive, Elms says, but Costco could serve this purpose instead.
“The likes of Pak’n Save may be the company that’s affected the most because it’s a similar proposition,” he says. “It’s like a Gilmours on steroids, but it sells much more than just food.”
If Costco does pitch up in New Zealand within the next year or two, Elms expects to see Pak’n Save and Costco compete on scale and price for a similar market position, with Pak’n Save’s strong brand power against Costco’s range.