Costco opens first Australian store – and SMEs could be the big winners

Fresh food, bulk groceries and a baby grand piano are just some of the products on sale as United States grocery wholesaler Costco opens its first store in Melbourne’s Docklands precinct today.

An extremely busy Costco Australia managing director Patrick Noone was bracing for a big morning, with thousands of shoppers expected to come and see the new store, which opened at 7:30am this morning. Many shoppers in fact turned up before 5am to be the first ones in.

“It’s going very well so far,” Noone told SmartCompany this morning.

Costco has been selling memberships to its warehouse since late July. Individuals will need to pay a $60 annual membership fee to shop at Costco, while businesses will need to pay a $55 fee.

The warehouse offers a product range that combines a supermarket and department store.

While many consumers will flock for the traditional grocery range of packaged foods, fresh fruit and meat and liquor, the warehouse also sells electrical goods, jewellery, tyres and optometry services and a number of unusual one-off items such as grandfather clocks and baby grand pianos.

At the heart of Costsco’s philosophy is the idea that big is better. Most goods are sold in bulk packs, with the savings passed to customers.

Carolyn Creswell, founder of premium muesli maker Carmen’s Fine Foods, is one of the Australian companies that have won a spot on Costco’s shelves.

She says Carmen’s was required to do a bit of work redesigning its packaging and pack sizes for Costco and as a result the products are quite different to what you’ll find in Coles and Woolworths. Rather than a standard box of six muesli bars, the Costco pack has 18; rather than a pack of 10 muesli bites, the Costco pack has 40.

Creswell expects the bulk products will attract the food service trade (such as cafes) rather than mum and dad customers.

“It will be fascinating to see how it goes. We really don’t know and at the end of the day it’s just one store. It will be interesting to see whether people embrace the concept of the membership store.”

Retail analyst Rob Lake agrees with Creswell’s theory that it will be businesses and not households who are most attracted to the bulk savings on offer at Costco.

“SME’s are in a position to buy in bulk and a lot of small retailers will use it as a wholesaler, simply because it will be cheaper,” Lake says.

He expects SMEs looking for cheap cleaning supplies, stationery and staff amenities such as tea, coffee and biscuits, will be keen to sign up and save.

And while Lake is expecting Costco will be very busy in its initial trading weeks, he says it might take awhile before we know whether Melbournians have embraced the Costco model.

“It’s a different market for them,” he says. “This is very new for Australians and we don’t yet know how big the market is of people willing to pay a membership fee to go shopping.”