Costco wheels out aggressive expansion plans

costco 420 420x0 Costco wheels out aggressive expansion plans

Way of the future? … The Costco store at Docklands has outsold US shops.

US discount retailer Costco’s beachhead in Australia, its warehouse-style store in Melbourne’s Docklands, is generating more sales than the average North American Costco. The Australian arm has been handed a further $40 million by its parent to fund aggressive growth. And the new kid on Australia’s supermarket block hasn’t been put off by the fresh price war being fought between Coles and Woolworths, claiming shoppers viewed differently its discount and bulk model, compared with the cheap offers of main rivals.

Costco Wholesale Australia has reported total revenue of $165.9 million for the 2009-10 financial year, eclipsing the average turnover of one of its American stablemates which typically produce annual sales of $145 million. The results for the year to August 30 represented the first full-year of operations for Costco in Australia.

Costco’s Australian managing director, Patrick Noone, told Business Day the supermarket, which relies on a membership model, had already signed more than 100,000 members in Australia and was performing strongly. ”It’s probably a little bit higher than the average North American [store] I would expect,” Mr Noone said.

However, the business still recorded a loss for the year, with its net loss falling to $11.43 million from $14.13 million as its US parent invested more capital in securing a new site for its second store, planned for Parramatta Road in Sydney’s west. It recently secured a site in the Majura Park Retail Precinct at Canberra Airport for its third warehouse.

According to documents lodged with the Australian Securities and Investments Commission, Costco received $40 million in equity funding from its parent Costco Wholesale International Inc in 2009-10. That was topped up after June 30 2010 with a capital contribution of $15 million and two additional capital contributions of a total of $25 million.

Costco’s US parent has ambitious plans for the retailer in Australia and the region, recently discovering it could reap faster growth rates from its offshore supermarkets than in the US.

Mr Noone said he didn’t believe Costco would be greatly affected by Coles’ recent discount campaign on items such as bread and milk, which Woolworths and others have been forced to match to maintain market share.

”We sell things in bulk, they don’t, they have outlets in most suburbs we have one, so the efficiencies of scale are different,” Mr Noone said.

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