Australia stars as Costco fuels discount plan

Australian shoppers are the biggest fans of US discount retailer Costco outside its native American market, filling their oversized shopping baskets with everything from bulk purchases of toilet paper to plasma TVs at the fastest rate the warehouse store has seen.

The comments by a US-based Costco executive come as the company is pushing ahead with plans to break into Australia's $15 billion-plus discount petrol business.

It poses a further threat to leading supermarket chains Woolworths and Coles, which both operate their own network of petrol stations, with the second Costco to open in Sydney later this year to sell heavily discounted fuel. The Costco under construction in north-western Sydney will have a bank of nine fuel pumps, and the discount retailer is confident its fuel prices for Costco members will be the lowest in the market. This is even when taking into account the popular petrol discount schemes offered by Woolworths and Coles, which typically slice 4¢ a litre from the advertised price.

It comes at a time when the Australian Competition and Consumer Commission is investigating the competitive impact of the supermarkets' petrol shopper docket schemes as independent fuel retailers argue they are being unfairly priced out of the market by aggressive discounting by the supermarket chains.

At the same time, the membership-based Costco plans to open a further five stores in the next 12 months, further shaking up the Australian retail landscape.

Costco will ramp up the competitive heat on Woolworths and Coles across the key groceries category and open two stores this year (a second in Melbourne and a second in Sydney) as well as three more (potentially across Brisbane and Adelaide) in 2014.

Costco executive vice-president and chief financial officer Richard Galanti told US analysts last week the Washington state-based discount retailer had recorded strong membership sign-ups at new store openings in Asia and Australia.

Mr Galanti said the company was reaping premium growth rates from its international business, with Australia the star.

"I think when we opened in Australia we got off to an incredible start, our highest per share volumes ever in a country," he said.

Costco, which requires people to pay an annual membership to shop in the warehouse-format store, is the world's eighth-largest retailer, with more than 500 stores in the US and other countries.

It is estimated Melbourne and Sydney each have more than 100,000 Costco members.

The local Costco management believes the location of its Melbourne store in the Docklands and its other stores away from large population centres means many shoppers see the shopping trip as a "destination" and tend to stock up more once they get there.

But this will change as Costco seeks to develop its warehouse stores in suburban settings. Costco is set to open its second Melbourne store next month in Ringwood.

Operating last year out of three stores - in Melbourne, Sydney and Canberra - the Australian arm of Costco managed to more than double its revenue to $609.5 million and reported its maiden net profit of $9.73 million for the 53 weeks to September 2012.