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Costco makes giant strides in grocery market

Date

Anne Davies

Anne Davies goes shopping to assess the attractions of buying in bulk.

Making headway ... Aldi offers individual products which gives it an advantage over its competitors.

Making headway ... Aldi offers individual products which gives it an advantage over its competitors. Photo: Marco Del Grande

ENTERING Costco's store at Lidcombe is like stepping into the land of the giants.

A vast, well lit warehouse is filled with shelves carrying large servings of just about everything.

There are 1.3-kilogram boxes of Weet Bix, two-litre bottles of sauces, shampoo and cleaning fluids, and massive meat trays laden with dozens of chops or steaks. Even giant flat screen TVs.

Why buy one, when you can buy six? Or 24? And why not stock up for a year, maybe more?

Presumably the customers in this super-sized world either live in McMansions with giant pantries and freezers or they have very large families. Perhaps there is an auxiliary market of people stocking their small businesses.

What seems clear is that the American shopping phenomenon, with its potent mix of price competition and a new shopping experience, is aiming to take a significant slice of the $85 billion Australian grocery market, dominated by Coles and Woolworths.

This week Liverpool City Council approved zoning changes that will clear the way for Costco's $40 million, 14,000-square-metre store at the Crossroads, Casula. The store is projected to attract more than 670,000 shoppers each year.

Documents lodged with the Australian Securities and Investments Commission reveal that Costco Wholesale Australia is now in the black, with its three existing warehouse stores generating about $610 million in sales and a net profit of $9.73 million for the 53 weeks to September last year.

Also making headway is the German chain Aldi, which is opening its 300th store in Australia next week. Another another eight are planned for 2013.

It, too, offers a unique, though much more compact, shopping experience that aims to both surprise with special items and offer cost savings on regular items.

A visit to both stores revealed they are competitive when it comes to price, though a visit to Costco requires a significant up-front outlay including the $60 membership fee.

For example, a roll of premium toilet paper at Costco is just 42¢ compared to 50¢ at Aldi, but customers need to buy 60 in a pack. Milk, bread, orange juice and tinned tomatoes were a similar price, but there were many more temptations at Costco such as imported cheeses and expensive cuts of meat.

The advantage of Aldi is it offers single items.

''It's always very clean and orderly and there is always a bit of a surprise,'' said Kirsten Hodgon, who was shopping this week with her two-year old son, Charlie, at Aldi's store in Waterloo. She said she liked the way Aldi stocked a small but interesting range of items in the centre of the store, which this week included its Expressi coffee machines, similar to Nespresso machines, for $99, chocolate and stationery.

''I can't do all my shopping here - I still need to go elsewhere for some items - but it's definitely cheaper,'' Ms Hodgon said.

Many of the shoppers at Costco midweek, mostly women, were wheeling their oversized white trolleys in pairs, enjoying an outing, in the same way as a trip to Ikea becomes a visit to a destination.

Some were planning to split up the larger packs and were also sharing a single annual membership.

The Costco shopping experience is also peculiarly American. While the Australian stores do not stock items such as diamond jewellery as American Costco stores do, they offer a cultural excursion into shopping US-style.

At the door, shoppers are invited to buy discount tyres for their sedan or sports utility vehicle, a service that is available at a number of chains in the US. Just drop the car off around the corner and pick it up after shopping.

Then there is the array of department store merchandise from large screen TVs to office supplies, to furniture.

The store also stocks an eclectic range of US foodstuffs: 1.5-litre bottles of ranch dressing, huge bottles of Texas barbecue sauce, big tins of iced tea mix, bagels, Hershey's chocolate and five-pound (about 2.3-kilogram) packets of orange cheese slices that are ubiquitous on burgers in the US.

It is also decidedly more upmarket than Aldi, or even Woolworths or Coles. The meat department was offering Wagyu steaks ($63 for four New York cuts) and trays of frozen lobster tail from the Bahamas, for about $65.

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