Costco’s growth prospects

Costco plans to open three news stores in its existing markets this year, however, new research conducted by Roy Morgan has found over the past five year it’s been each city’s first store that has most accelerated the growth in total Australian shoppers.

Costco Australia MD Patrick Noone announced earlier this month Costco was planning to open three stores in 2016 in Sydney, Brisbane, and Melbourne, with the retailer then planning to turn its attention to “second tier” cities such as Newcastle, Wollongong, and Darwin.

According to findings released by Roy Morgan Research, in the year to September 2015, a total of 667,000 Australians 14+ (3.4 per cent) were Costco shoppers (people who visit in an average four-week period and/or say they mainly or sometimes shop there). Of all these total Costco shoppers, 420,000 (63 per cent) actually shop there in an average four weeks—a proportion well below the 80-90 per cent among Woolworths, Coles, IGA or Aldi shoppers.

Each new Costco store adds new shoppers overall, with growth strongest when a new city gets its first outlet. Within two years of its much-hyped Australian store launching in Melbourne’s Docklands in August 2009, Costco gained around 140,000 shoppers—but this showed signs of having peaked. After the second and third stores opened in Sydney and Canberra in July 2011, the total number of shoppers soon surpassed 300,000—but again, after a couple of years, growth appeared to be slowing.

“Trending the growth in the total number of Costco shoppers nationwide suggests that second stores which opened in Melbourne and Sydney in November 2013 had less of an overall impact than did their first stores in those cities, or the subsequent new stores in Brisbane and Adelaide. We’ll soon know the results of Melbourne’s third store, and be tracking throughout the year as more stores open,” Levine said.

Second stores in both Melbourne and Sydney in November 2013 gained some new shoppers in each city, but growth really accelerated once Brisbane got its first Costco in May 2014 and Adelaide its first in November 2014. This latest data doesn’t yet show the impact of the eighth Costco store that opened in Moorabbin in November; new data covering the last quarter of 2015 will be available soon.

The rise of Costco in Australia


Source: Roy Morgan Single Source Australia, July 2009- September 2015, 12 months sample rolling monthly, average annual n = 18,512 Australians 14+

While the number of Costco customers grows with each additional store, the growth slows proportionally with each new opening, according to Roy Morgan, and the total amount of Costco customers is still well below the percentage that shop at the four majors in an average four-week period.

While data including the latest opening at Moorabbin in November last year is not yet available, Michele Levine, CEO, Roy Morgan Research said with the grocery wholesaler’s latest store included, Costco may have pipped 700,000 shoppers across Australia. If the openings in second-tier cities do go ahead Costco’s growth is likely to accelerate at rates similar to those seen when the first stores in the major cities. So far, it has been each city’s first store that has accelerated the most growth in total Costco shoppers.

Despite its warehouses full of bulk-bought discounts, Costco shoppers actually come in with more money to spend than the norm. The wealthiest fifth of Australians by socio-economic are almost 50 per cent more likely than average to shop at Costco. This AB quintile makes up 29 per cent of all Costco shoppers, and another 25 per cent are in the second to top C quintile. Middle Australia, the D quintile, is only slightly overrepresented among Costco shoppers (21 per cent), while just one in four shoppers (25 per cent) come from the lower 40 per cent of the socio-economic population in the E or FG quintile.

“Very few Australians do their main grocery shopping at Costco—the vast majority of Costco’s member customers are only occasional visitors. Only around 60 per cent of Costco shoppers have even been to the store in the last four weeks.

“As our recent Spotlight on Retail report showed, we spend over $100 billion a year on groceries and another $110 billion or so on commodities like clothes, electrical goods, jewellery and pet supplies – many things that Costco also stocks. So even though a typical Costco member may still buy most of their groceries at Woolworths, Coles or Aldi, most of their clothes at Myer, Target or online, most of their alcohol at Dan Murphy’s or First Choice, and most of their appliances at Harvey Norman or The Good Guys, each new Costco may take tiny bites out of a whole range of nearby retailers.”

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