New liquor threat as Costco announces major expansion plans

January 3, 2019
By Alana House

Costco has announced major expansion plans in Australia following double-digit sales and profit growth last year. 

Costco’s total revenue for the 12 months to September 3 grew by 14% to $1.8 billion.

While still only a fraction of the supermarket and bottle shop sales at Coles ($39 billion) and Woolworths ($45.5 billion), Costco sees huge potential to grow in the Australian market. 

The company currently has 10 local warehouses that sell everything from groceries to fresh meat, televisions and liquor. 

It notes on its website that it has a “selection of wine, spirits and beer includes the brand names you know well”.

“In addition to our standard range of wine, we have many fine wines available for purchase,” Costco adds. “We carry both top-selling beer and lager as well as selected regional favourites.”

Currently it sells alcohol in NSW, Canberra and Victoria, but has been unsuccessful in its battle to obtain liquor licensing in Queensland and South Australia. 

Costco now has a membership base of 225,000 and charges an annual fee of $55 for businesses and $60 for individuals to shop at its warehouse stores.

“We keep the prices low, and we keep bringing in brand name merchandise, and consumer seems to like that,” Costco country manager Patrick Noone told the SMH

Morgan Stanley research found last year that Costco shoppers pay almost 30% less than at Coles or Woolworths.

Costco Wholesale Australia managing director Patrick Noone holding a bottle of single malt scotch whisky.

Costco’s reported after-tax profit of $29.5 million for the year was up from $13.4 million last year (the figure was boosted by $8.6 million due to an accounting change in accounting standards).

Noone said revenue growth was driven by opening new stores, in Sydney’s Marsden Park and in Epping, Melbourne.

“Our profit margins are strong,” he added to The Australian. “I’m not sure if they are the strongest they have ever been, but the whole concept of Costco is to drive top-line volume, to grow sales and leverage the costs. We are running at low cost margins and they are decreasing as we grow higher top-line sales. They (costs) are lower than when we first started in Australia.”

Costco plans to open a new store in Brisbane in February, and is about to start construction at another store in Perth, which it hopes to have open before Christmas 2019.

The company’s new $78 million distribution centre in western Sydney’s Kemps Creek is the size of 17 football fields, with 33,000sqm of internal space. It will be big enough to service up to 30 stores nationally plus online when completed in March next year.

Costco intends to launch an online offering at some point in 2019 that will be available in every capital city.

“The US has a very successful online business, and it’s part of retail now that you have omni-channel rollouts,” he said.

Costco is already attracting strong interest in its pilot program for online deliveries for businesses based near the Melbourne CBD. The service currently requires a minimum order of $1000 and delivery within a 10km radius of its Docklands store.

Online sales are booming for Costco overseas, with e-commerce revenue up 32.3% at its online stores in the US, Canada, UK, Mexico, Korea and Taiwan, according to the company’s latest financial statement. 

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