COSTCO: HOT OR NOT?

Posted on Sep 15, 2009 - 02:24 PM

But will the chain be a success in Australia and break the marketdominance of Woolworths and Coles?There will certainly be shoppers attracted to the low price brand and private label SKUs that Costco offer. However, there are clearly some barriers to success if the retail giant want to steal market share away from the likes of Coles and Woolworths.

Finding locations for the stores is a major issue likely to prohibit expansion. The stores need to be close enough to major cities to be accessible to its middle income family target market, but finding sites big enough is causing huge headaches. Unlike shoppers overseas, Australian’s do not traditionally travel far for their grocery shopping. Having stores too far out of traditional suburban suburbs is likely to limit long term success, with shoppers eventually choosing convenience over price.

Suppliers’ relationships with Costco will also be an interesting determinant on the prices Costco will be able to offer and the range of branded SKUs available in the long term. The larger specific pack sizes required by Costco may add considerable costs to suppliers business which may prove difficult to absorb.

Finally it should also be interesting to see how Australians adapt to shopping membership fees, which is a foreign concept in Australia. While Costco’s arrival may add an extra choice for some Australian shoppers, only time will tell whether the company is a real threat to Woolworths and Coles grocery supremacy.

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