Costco will change the way New Zealanders shop

Multiple delays and a NZ$60 entry cost have done little to quench enthusiasm for New Zealand’s first Costco, with New Zealanders lining up for more than 90 minutes recently for a chance to buy a membership to the store.

A members-only warehouse retailer, the store will sell a wide range of products including food and grocery items, clothing, electronics, furniture and more. Commentators and people familiar with the brand have claimed the store will disrupt the duopoly that currently dominates New Zealand’s grocery sector.

But to enter the warehouse you must pay a membership fee, set at $60 a year or $55 if you own a business.

Just going by what is currently open – the petrol station – shoppers would need to spend $1,494 on petrol to gain enough savings to make up for the membership. A saving of 10 cents per litre on a 60-litre tank will require ten fills. That said, in the US, replacing one tyre would allow you to break even.

Are prices really cheaper?

Research shows that club store prices can be 22.5% lower than traditional supermarkets.

Already, Costco’s store-adjacent petrol station in Auckland, which opened in April, has had a significant impact on fuel prices in the neighbouring community.

As the world’s third largest retailer, Costco has significant buying power to support its everyday low pricing strategy.

Costco buys in bulk, allowing the store to achieve economies of scale creating savings which can then be passed on to members. The company limits the mark-up on merchandise to between 14 and 15% above costs. In comparison, department stores typically mark up their products by 30% or above.

Costco also has a no-frills self-service store environment and an extremely low marketing budget – which save around 2% a year in costs.

But shoppers will need to get used to a smaller range of each product. Instead of eight brands of toothpaste offered by Countdown online, for example, you might only find four in Costco. Fewer brands in a category allows Costco to buy more of a single product and push for discounts from suppliers.

Costco will push a behaviour change

Costco differs from traditional supermarkets in that it is a warehouse-style shopping experience where you shop from pallets and buy in bulk. Package sizes are often three times larger compared with traditional supermarkets. So, instead of a 405 gram jar of mayonnaise, Costco sells a 1.8 kilogram jar.

Kiwis typically visit the supermarket one to three times per week. Costco members shop on average every two to three weeks to stock up on bulk items.

Shopping in bulk might not fit with our current shopping culture. The Costco way of shopping will require behaviour changes to make sense.

The company also pushes the use of grocery coupons, common in the United States but less so in New Zealand.

People go crazy for Costco

Overseas, Costco is a destination store and research suggests that travel distances can be almost 12 times longer compared with traditional supermarkets.

Once at the store, people usually spend considerable amounts of time to do their shopping. There are no in-store signs or directories and shopping can feel like a scavenger hunt.

That said, Costco has a massive following. One fanatic  even tattooed the Costco’s private label brand (Kirkland Signature) on himself, and other loyal shoppers have proposed or even tied the knot in the warehouse.

The adoration seems to be building in New Zealand with 70,0000 followers on a local fan page.

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