Costco rolls on in campaign to steal big boys' market
DISCOUNT retailer Costco has underscored its threat to supermarket giants Woolworths and Coles by posting its maiden annual profit in Australia. It has also received a further $50 million from its American parent to bankroll an aggressive push.
It has also received a further $50 million from its American parent to bankroll an aggressive push.
Costco opened the first of its warehouse stores in Australia four years ago. Operating last year out of three stores, in Melbourne, Sydney and Canberra, Costco managed to more than double its revenue to $609.5 million as shoppers warmed to its club membership model and bulk purchases of everything from whitegoods, fish and furniture, to hearing aids and French wine.
With another three warehouse stores under construction or awaiting planning approval, Costco has sent a clear warning to the supermarket heavyweights, German discounter Aldi and the struggling convenience store sector that it is rushing towards $1 billion in annual sales in Australia.
The threat to the supermarket dominance of Woolworths and Coles comes as Aldi, which specialises in a limited range of deeply discounted private-label groceries and merchandise, is set to open its 300th store in Australia next month. Aldi is believed to have captured 5 per cent of the national market since it arrived in 2001.
Documents lodged with the Australian Securities and Investments Commission reveal that Costco Wholesale Australia reported a net profit of $9.73 million for the 53 weeks to September 2012, its first profit in Australia and a turnaround from its $13.2 million loss in 2011.
The period reflects a full year of operation for its three warehouse stores, with Melbourne and Sydney believed to generate the bulk of the nearly $610 million in sales and membership purchases. Melbourne and Sydney have more than 100,000 members each.
Since opening its first warehouse in Melbourne's Docklands in 2009, Costco has racked up retained losses of just under $38 million, reflecting the start-up costs of building its large-format stores and operating out of limited sites.
The maiden profit in Australia was driven by extra revenue generated by its two new stores, improved productivity and efficiency that flowed from its expanding network and the recognition of current and prior-year deferred tax assets. It received a tax credit of $13.4 million.
The company's managing director for Australia, Patrick Noone, said: "I think there is a lot of opportunity for Costco here in Australia and we are thrilled and very satisfied to see that the business is growing."
Mr Noone said the fresh-food category remained popular, as did the bakery and household goods such as toilet paper and detergents. Hearing aids were a standout performer for Costco, while its range of premium wines was also in demand.
"We do a lot of imported wines from Europe and that seems to be one of the big growth areas for us."
During the 2011-12 year Costco received $50 million in equity funding from its US parent, helping to fund its growth including the purchase of land at Ringwood, where it is building its second Victorian warehouse.
Meanwhile, Wesfarmers, owner of Coles, Bunnings, Target and Kmart, on Wednesday reports its second-quarter sales performance. Market leader Woolworths, which also owns Big W, will unveil its sales numbers on Thursday.
Coles is again expected to outgrow larger rival Woolworths, notching up growth of around 4 per cent against 2.8 per cent for Woolies.