Costco’s fuel expansion to help drive grocery market share

United States membership warehouse retailer Costco is expected to drive increased competition and change in Australia’s $125 billion supermarket, grocery and fuel retailing sector, helped by its broad range of products and expansion into fuel retailing to become a ‘one-stop’ shop, according to researcher IBISWorld.

Costco’s continued expansion has grown its share of supermarket revenue. IBISWorld industry analyst Brooke Tonkin said that Costco already claims 1.2% of this $88.1 billion dollar industry, with only seven stores in Australia.

“Costco’s ongoing diversification into the fuel retailing industry is expected to increase competition, with the company’s low-price strategy attracting motorists, as customers have little brand loyalty in terms of fuel,” she said.

The fuel retailing industry faces a high level of competition, as price and location largely determine where motorists buy petrol. “Most consumers see petrol as an undifferentiated product and therefore purchase on price – there is effectively no brand loyalty,” Ms Tonkin added.

“The Costco fuel retailing strategy offers customers convenience and consistently lower prices, in line with the company’s grocery strategy.”

The introduction of a fuel station at the Brisbane North Lakes store in May 2014 prompted a flurry of fuel price cutting in the surrounding area, with Costco’s fuel prices remaining lower than other retailers in the city and customers saving up to 15 cents per litre. In the months following its opening, competition from Costco continued to force down prices.

Since entering Australia in 2009, Costco has opened seven stores, with four petrol stations added at Crossroads in New South Wales, North Lakes in Queensland, Canberra and, most recently, Kilburn in South Australia, since 2013.

According to media reports, warehouses and petrol stations are expected in the Melbourne suburb of Moorabbin by the end of 2015, Sydney’s Marsden Park in 2016, and a possible second site in Brisbane.

Costco reported net sales for 2014-15 of US$113.67 billion, up 3% on the previous year.

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