Costco to open new Aussie store as bulk buy giant continues expansion into $120 billion sector

Yahoo

2 hours ago

American bulk buy giant Costco has confirmed it will open its 16th Australian store in Victoria as it continues to eye new opportunities across the country. Costco is emerging as a major player in Australia's $120 billion supermarket sector, which is currently dominated by Coles and Woolworths.
Costco will open its fifth Victorian store in Pakenham in 2027, which will join the 15 warehouses dotted across the country since the company arrived in Australia in 2009. Costco Australia country manager Chris Tingman told Yahoo Finance the membership-based store continued to review new opportunities for store expansion.
'We attribute our success to our unique offering within the market – our ability to provide access to a wide range of exciting, quality items and services at incredible value resonates with our membership base,' he said.
'We are pleased with Costco's steady growth within Australia and plan to continue reviewing new opportunities to open more warehouses in the future.'
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Costco's Australian arm, which includes Costco Taiwan, reported about $11.37 billion in revenue and $279 million profit in the year to September 2024, according to financial records.
The Australian reports Costco Australia is now on annualised sales of $5 billion.
The US giant has never released its membership size in Australia, but insiders told the paper it was believed each warehouse had around 100,000 paid subscribers, giving it a base of around 1.5 million.
Tingman said the Pakenham warehouse would offer members exclusive access to a range of brand-name merchandise and a range of warehouse services, like a fuel station.
'When deciding on new warehouse locations, the focus is to find lots that are close to our members, and are large enough to house our comprehensive range of goods, specialty services, fuel stations, and car parks,' he said.Costco not cause for concern for Coles, Woolworths just yet
Consumer expert Nitika Garg from the University of New South Wales told Yahoo Finance Costco was targeting a different segment of consumers than the major supermarkets, generally larger families who were looking to bulk buy and often did more infrequent trips.
'I think that's one reason why they have been so successful in Australia as well, because their model is not in direct competition with Woolies and Coles,' Garg said.
At the ACCC's supermarket inquiry last year, Metcash described Costco's model as targeting the 'monthly pantry load', meaning consumers are going there for a large, infrequent shop for non-perishables.
'With increasing numbers, there will be a slight shift, but it is a different model because they also have a membership cost,' Garg said, noting standard memberships were $65.
'Right now, I don't think Coles and Woolies would be worried about them. They'd be more concerned with Aldi and IGA to a lesser extent.'
In terms of access, Costco stores are located in outer suburbs, which Garg noted meant they lost a lot of higher-density areas and people were more likely to do infrequent shops.
'I think proximity plays a huge role, which for the concentrated population we have in the urban centres in Australia is unlike the US, that's where they are different,' Garg said.
'In the US, they very much do compete with the grocery stores. But here, there are a lot of other factors going in where they're not really up against Coles and Woolies just yet.'
Increased competition needed
Australia's supermarket sector is currently a 'near-duopoly' of Coles and Woolworths, who control about 67 per cent of the market.
Aldi, which entered Australia's grocery market in 2001, has about 9 per cent of the market, while Metcash has 7 per cent.
Garg said the lack of competition means Coles and Woolworths have no incentive to be price-competitive, something which was echoed by ACCC deputy chair Mick Keogh last year.
'Oligopolistic market structures can limit incentives to compete vigorously on price," he said.
"We see Woolworths and Coles providing a broadly similar experience to customers through largely undifferentiated product ranges, pricing at similar levels and similar non-price offerings including loyalty programs.'
Despite ongoing speculation about potential new entrants like Lidl or Amazon Fresh, there are no new supermarket chains slated to open in Australia.
German retailer Kaufland was previously tipped to open up to 12 locations, but dumped plans five years ago.
Prime Minister Anthony Albanese previously ruled out forcibly breaking up the major supermarket chains.
However, he has flagged measures to encourage new entrants, including reducing the ability of supermarkets to 'land bank', where supermarkets buy land without an intention to develop it, to stop competitors from establishing supermarkets on it.
Garg said the current financial pressures on consumers meant new players would be unwilling to enter the market.
'It's more risky for a new venture. So I think that, combined with the fact that Coles and Woolies are so well entrenched, makes it harder for new players to enter the market just now,' she said.
Garg said Costco's recent partnership with delivery service DoorDash could be a positive for competition in the long term. Through the collaboration, non-members are able to shop at Costco via DoorDash; however, they cannot access member-exclusive prices.
'If they are able to generate that sort of warehouse demand for their products then maybe over time we might see them competing at least in the same categories directly with Woolworths and Coles,' she said.