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  1. #1
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    Default Will Costco NZ be Any Cheaper??

    https://www.stuff.co.nz/business/opi...e3PRaSVqlP46g8

    If you ask me this is a pretty poor example of the "Three reasons Costco is different from anything else in NZ" 1) Petro 2) Hearing Aids & 3) Cheap & Big

    As growing up shopping with Costco during my younger years (in Canada), and comparing to shopping at The Warehouse or K-Mart, I learned the marketing approach differs greatly. I'm curious and quite dubious on how Costco will do well in NZ.

    My 1st Costco visit was back in 1993 in my home town and the price difference was considerably less to the conventional mom & pop retail stores. Within a period of 10 years, virtually ALL the local retailers had closed up. Not only to bringing lower prices (which The Warehouse in NZ is suppose to do), Costco N. America had the surprise element" (or what Buffet would say, the "Secret Sauce"). Meaning, the ability to bring in products from 1 side of the world to the local buyers that they've never seen but would definitely want to buy. In the past i've seen what The Warehouse would sell as a new product made in NZ, to only later have the same product made in China and imported directly to compete with the NZ supplier.

    The NZ marketing as i've seen with the likes of Katmandu & Briscoes is they buy a product for say $10, and then market it x 10 times to retail at $100. They then have a big blow out sale say 50% off and that fry pan selling for $50 still nets them a large profit. This is VERY different to the Costco model. Having a close friend in college that worked at Costco (after Uni he did is CA accounting and went to head office Costco in Canada), he told me most of the products sold on the floor at Costco is on a consignment basis with very low markups. For electronics, as low as 10%. He says the floor space is so critical to the sale that Coscto actively monitors each product to ensure it's moving. So if boxes of cereal or a TV sits on the pallet for too long, Costco goes back to the supplier and negotiates why ; lower the price? bad out of fashion product? etc. This is very different to The Warehouse where it sources most of it's products directly from China and if the merchandise sits on the floor throughout all their stores, they have no recourse than to simply try to lower the price. They can't send it back to a nationwide distributor if the product doesn't sell.

    This is not to say Costco doesn't deal with local distributors. The point being is Costco never gets stuck with stale products and can move to newer products as the fashion and times change. I remember buying my 1st DVD player at Costco, a Sanyo. Almost 8 or so months, it stopped playing discs. Took it back to Costco and had NO QUESTIONS asked and full CASH refund in my hand (got to get some benefit from the annual membership fee). That DVD player would go back to the Cdn Sanyo distributor and they would have to wear the costs.

    Now consider the supply distribution chain in NZ. You have an oligopoly food retail industry for the likes of Countdown / Progressive Group etc. Can you imagine the outcome if Costco where to approach these same suppliers to get a cut on their merchandise by the existing retailers like Pak N Save or the red sheds? For example take Coca Cola. There is only 1 supply distribution for their fizzy drinks and they supply. If a Costco asks Amatil Coke for special pricing, or the major food suppliers realise their Coke fizz products aren't selling (as Costco has taken their sales away), you can be sure the existing retailers will launch a complaint to Coke Amatil ; thus making threats along the line, "If you don't stop supplying Costco, we will stop buying your product". or "We have 100s of Pak N Save stores around NZ, Costco only has a few, will you play ball or not?".

    NZ is a very small country ; at the time I left Canada my Costco friend told me they had no intentions of looking to setup in NZ because the #s don't work out. They did open up in Australia and Korea because of larger population but back in 1994, he said the restricted supply chains in a small country like NZ is a problem and Costco (at that time) isn't in the business of doing it's own mass importation of products directly from factories in China etc. However, they are very clear to maintain a very low margin markup, that we don't normally see in NZ.

    If Costco proves well, then expect mass closures of retailers. As i've said, i've witness this happen in Canada. The concept where you drive for food at the closest Pak N Save or New World etc. will no longer apply. IMO, there's FAR too many of these shops close by in EVERY suburb that they won't be sustainable if the Costco model takes off in NZ. Also if people think online shopping is a real threat, it hasn't been in N. America ; every year when I go to Costco they have like 10 checkouts going with long line ups. You will never see this at a Warehouse even on Xmas day.

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    The Warehouse did this for small town NZ. Just go to many small towns and talk to the locals. Used to be a thriving town with lots of small local businesses, then The Warehouse moved in and they couldn't compete so had to close down, lots of empty shops but one big Warehouse. So Costco may do this to the Warehouse. Very sad, people buying more crap they don't need and getting themselves in more debt. People don't click to get these cheap prices, these retailers screw down their suppliers, who in turn screw down their employees via lower wages, then people bitch because they are on allow wage. A stupid vicious cycle.

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    To some extent we have seen this already. Small towns hated it it when the Warehouse opened up. It was one of the first Big Boxes that forced the closure of many small town mom and pop business (Steven Tyndal has to be one of NZ biggest hypocrites - that along with the Warehouse being one of the biggest contributors to NZ land fill wast - but dont get me started on that).

    Seems to me Cosco wil rely on the standard Large volume low margin model. There are problems with that at a scaling level with NZ's still relatively small population. I suspect it may work well (or not for the vulnerable) who will end up spending $60 they havent got on membership, spend mega dollars driving to the other side of town to buy twice as much of something they need.

    NZ supermarkets already adopt the "real estate" model. Their floor space / stock turn is constantly monitored. The high margin stuff is negotiate to be put at eye level on premium aisles.

    And where I have no sympathy with NZ retail is their constant failure to sell the benefits of the Consumer Guarantees Act - instead badgering government to "even the playing filed" and forcing GST on off shore "amazon" type purchases. Might give NZ retailers a kick in the arze to promote this significant benefit - and stand by it.

    It will be interesting to see who COSCO customers will be. Top-end-of-town mums or Pajama / tiger slipper wearing westies.

    Disc. Apart from my local Miter 10 I detest any big box shopping and avoid them like the plague.

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    We must of been typing at the same time Minimoke. Funny about the pj comment, up here is Kaitaia, cafes and shops have signs on their windows saying they won't serve you if you come in, in pj or dressing gown. (does happen quite a bit up here)

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    The car park around the Melbourne one seemed to be full of SUVs ....maybe indicative of the type of customer they attract.
    “In a roaring bull market, knowledge is superfluous and experience is a handicap.”

    –Benjamin Graham”

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    Quote Originally Posted by winner69 View Post
    The car park around the Melbourne one seemed to be full of SUVs ....maybe indicative of the type of customer they attract.
    Aren't all shopping car-parks full of SUVs these days?

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    Yes full of SUV's.
    "Put it this way: medium "cars" account for less than four per cent of the market in NZ. SUVs are now the default family-vehicle choice and there's no sign of that changing any time soon"
    .https://www.stuff.co.nz/motoring/tre...-of-family-car

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    Quote Originally Posted by fungus pudding View Post
    Aren't all shopping car-parks full of SUVs these days?
    They sell consumer good in bulk which as units makes them cheap..unless you want to use an extra freezer and storage everywhere at home they work for the family, not single people, couples.

    We buy from there for large BBQs , entertaining when the wider family/friends visits us in the States.

    The fuel is incredibly cheap however the ques are the worst i have every seen waiting for fuel anywhere. So it comes down to timing or how you value your time on that one.

    The key will be the distribution channel through the Australian supply chain management and the pricing they can offer. I would think they have that all sorted or they would not progress. Population wise they have the numbers, positioning on that site opens up not just wider Auckland as a target but central North Island via Hamilton.


    It will also draw domestic visitors who are in Auckland for other reasons, so in excess of 2 million people say... That is a good concentration and similar to the concentration in the US.

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    Great comments from the demand side. I suppose I was speaking more from the supply (chain) side.

    Quote Originally Posted by Raz View Post
    They sell consumer good in bulk which as units makes them cheap..unless you want to use an extra freezer and storage everywhere at home they work for the family, not single people, couples.

    We buy from there for large BBQs , entertaining when the wider family/friends visits us in the States.

    The fuel is incredibly cheap however the ques are the worst i have every seen waiting for fuel anywhere. So it comes down to timing or how you value your time on that one.

    The key will be the distribution channel through the Australian supply chain management and the pricing they can offer. I would think they have that all sorted or they would not progress. Population wise they have the numbers, positioning on that site opens up not just wider Auckland as a target but central North Island via Hamilton.

    It will also draw domestic visitors who are in Auckland for other reasons, so in excess of 2 million people say... That is a good concentration and similar to the concentration in the US.
    Population isn't the key as i've visited many Costcos in small towns with less than 50K people. I'm critical that the parallels in the US are not the same in NZ. As mentioned having people drive from 1 side of town across the other ; in Auckland that is hell and inefficient. In the US, the cities there are better managed with more efficient 'grid' system layouts with multiple highways with purpose built suburbs designed for easy in and out commutes, pose no problem for residents to drive across town.

    Second, consuming habits are different. NZ folk tend to buy their food and consumables 'WHEN' they need it. So they do frequent visits to their nearest shopping mart and don't consider buying ie bulk toilet paper is a requirement. Perhaps it could be a disposable income thing living by pay period to pay period. In the N. American sense, the view of buying bulk is that it's far cheaper on a per unit basis AND it's very inefficient to do multiple visits in the month to buy. They view having to do grocery shopping every 2nd or 3rd day (that I see with most of my neighbours living in Christchurch) is wasting fuel costs and time. Break it down to make a choice decision on buying toilet paper in 12 rolls vs 48 rolls where the person unit of 48 rolls would be far cheaper. But this is not so when I shop at Pak N Save or Countdown; where they offer NO DISCOUNT on buying the bulk size packaging. I feel this may be due production limits in the supply chain to discourage bulk buying (or lacking any such products) in NZ. It could be the marketing with Pak N Save and others is to get the consumer to do multiple visits every week to encourage more impulse buying. ie the saying goes the more people you get in your store often, the more likely they spend their wallet. This is very different to N. America doing only weekly visits. Again, where are the bulk volume discounts in NZ retail??? If i could buy lamb or beef at 30% less all the time in bulk, it would then be worthwhile for me to run a freezer in the garage.

    As for cheaper fuel ; again the marketing models and supply chain in NZ differ to N. America. For the past some years we've seen all these "fuel discounts" per cents/litre kind of deal if you spend so much at such and such retailer. This model won't work in N. America because of the competitive nature of the supply chains. But in NZ. what we're basically seeing is everyone getting ripped off if they buy fuel WITHOUT a voucher discount. It's because the prices of all the major fuel retailers have kept prices high and profit more against those that don't get the most fuel cents/L discount. This is shown by smaller retailers like Gull, McKeown, and Allied around NZ that give a rats ass about about fuel discount vouchers. Their prices are really what the true retail price should be which is consistently 6 - 10c/L less than all the others. I doubt Costco can break into NZ's fuel supply distribution being a 1 shop retailer, while in N. America they're so big that they can negotiate direct with the fuel manufacturers (NOT the suppliers). I remember several years ago Pak N Save added fuel stations at their retail shops but if we all look ; their advertise board price is NO cheaper (why? because limits that the supply chain dictates to the retailers).

    Costco has the potential to disrupt the NZ retail business model and if they do so, shareholders of NZ retail companies should be concerned - especially those Kiwi Saver funds that hold large positions in these NZ companies. This is the sole reason why i'm never for investing in NZ shares or on the NZX because NZ already has an open door to global multinational companies. Canada saw this many decades ago ; where they restricted investors by having a max. 33% foreign investment limit (trying to encourage buying Cdn shares) and had to remove those limits due to investment / political pressure. We have the same thing in NZ where the FIF/FDR limits favour investing NZ shares than those on the S&P500. Will there be a time that foreign nationals have too large of a presence in NZ that too much of the profits flow abroad and the IRD tax base has eroded to the point that NZ may impose more restrictive laws? (ie like the ban on foreigners buying homes in NZ?).

    @ minimoke: The NZ supermarkets don't really have a 'real estate' model on their shelves. I see lots of packaged food on the shelves at Pak N Save sitting for several months. It just means the supplier that stocks it pays a shelf fee to Pak N Save ; this will never fly with Costco. When an item is on for display there, it has to be moving or else it's removed. If you know others that shop in Costco often, the products you buy there are not all the same year after year. Often they bring in products that are 'hot sellers' / sold out within a week but Costco makes no attempt to get the supplier to bring in more stock. That's because it's either the supplier chose not to supply more or they may of discounted a discontinued item for quick sale at Costco. I remember years ago a friend buying a hands free rubbish bid (where the lid of the rubbish bin would sense your hand and opened up automatically so you can dispose the food scraps, etc.) and then automatically close the lid. The Costco only brought in so many units and no more ; never ever been able to see that product again (hence, Costco's 'Surprise Element'). If you shop at Costco in Alaska, at times they sell Ski Doos. Go to the Costco in Vancouver and you won't see the same product line and would sell different items not for the Alaskan market (ie high price hand bags). This is a different model to say The Warehouse that would have consistent same stocked items at every retail outlet throughout NZ (so it's consistent to the advertised flyers they send out in the mail box).

  10. #10
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    Quote Originally Posted by SBQ View Post
    Great comments from the demand side. I suppose I was speaking more from the supply (chain) side.



    Population isn't the key as i've visited many Costcos in small towns with less than 50K people. I'm critical that the parallels in the US are not the same in NZ. As mentioned having people drive from 1 side of town across the other ; in Auckland that is hell and inefficient. In the US, the cities there are better managed with more efficient 'grid' system layouts with multiple highways with purpose built suburbs designed for easy in and out commutes, pose no problem for residents to drive across town.

    Second, consuming habits are different. NZ folk tend to buy their food and consumables 'WHEN' they need it. So they do frequent visits to their nearest shopping mart and don't consider buying ie bulk toilet paper is a requirement. Perhaps it could be a disposable income thing living by pay period to pay period. In the N. American sense, the view of buying bulk is that it's far cheaper on a per unit basis AND it's very inefficient to do multiple visits in the month to buy. They view having to do grocery shopping every 2nd or 3rd day (that I see with most of my neighbours living in Christchurch) is wasting fuel costs and time. Break it down to make a choice decision on buying toilet paper in 12 rolls vs 48 rolls where the person unit of 48 rolls would be far cheaper. But this is not so when I shop at Pak N Save or Countdown; where they offer NO DISCOUNT on buying the bulk size packaging. I feel this may be due production limits in the supply chain to discourage bulk buying (or lacking any such products) in NZ. It could be the marketing with Pak N Save and others is to get the consumer to do multiple visits every week to encourage more impulse buying. ie the saying goes the more people you get in your store often, the more likely they spend their wallet. This is very different to N. America doing only weekly visits. Again, where are the bulk volume discounts in NZ retail??? If i could buy lamb or beef at 30% less all the time in bulk, it would then be worthwhile for me to run a freezer in the garage.

    As for cheaper fuel ; again the marketing models and supply chain in NZ differ to N. America. For the past some years we've seen all these "fuel discounts" per cents/litre kind of deal if you spend so much at such and such retailer. This model won't work in N. America because of the competitive nature of the supply chains. But in NZ. what we're basically seeing is everyone getting ripped off if they buy fuel WITHOUT a voucher discount. It's because the prices of all the major fuel retailers have kept prices high and profit more against those that don't get the most fuel cents/L discount. This is shown by smaller retailers like Gull, McKeown, and Allied around NZ that give a rats ass about about fuel discount vouchers. Their prices are really what the true retail price should be which is consistently 6 - 10c/L less than all the others. I doubt Costco can break into NZ's fuel supply distribution being a 1 shop retailer, while in N. America they're so big that they can negotiate direct with the fuel manufacturers (NOT the suppliers). I remember several years ago Pak N Save added fuel stations at their retail shops but if we all look ; their advertise board price is NO cheaper (why? because limits that the supply chain dictates to the retailers).

    Costco has the potential to disrupt the NZ retail business model and if they do so, shareholders of NZ retail companies should be concerned - especially those Kiwi Saver funds that hold large positions in these NZ companies. This is the sole reason why i'm never for investing in NZ shares or on the NZX because NZ already has an open door to global multinational companies. Canada saw this many decades ago ; where they restricted investors by having a max. 33% foreign investment limit (trying to encourage buying Cdn shares) and had to remove those limits due to investment / political pressure. We have the same thing in NZ where the FIF/FDR limits favour investing NZ shares than those on the S&P500. Will there be a time that foreign nationals have too large of a presence in NZ that too much of the profits flow abroad and the IRD tax base has eroded to the point that NZ may impose more restrictive laws? (ie like the ban on foreigners buying homes in NZ?).

    @ minimoke: The NZ supermarkets don't really have a 'real estate' model on their shelves. I see lots of packaged food on the shelves at Pak N Save sitting for several months. It just means the supplier that stocks it pays a shelf fee to Pak N Save ; this will never fly with Costco. When an item is on for display there, it has to be moving or else it's removed. If you know others that shop in Costco often, the products you buy there are not all the same year after year. Often they bring in products that are 'hot sellers' / sold out within a week but Costco makes no attempt to get the supplier to bring in more stock. That's because it's either the supplier chose not to supply more or they may of discounted a discontinued item for quick sale at Costco. I remember years ago a friend buying a hands free rubbish bid (where the lid of the rubbish bin would sense your hand and opened up automatically so you can dispose the food scraps, etc.) and then automatically close the lid. The Costco only brought in so many units and no more ; never ever been able to see that product again (hence, Costco's 'Surprise Element'). If you shop at Costco in Alaska, at times they sell Ski Doos. Go to the Costco in Vancouver and you won't see the same product line and would sell different items not for the Alaskan market (ie high price hand bags). This is a different model to say The Warehouse that would have consistent same stocked items at every retail outlet throughout NZ (so it's consistent to the advertised flyers they send out in the mail box).

    "Population isn't the key as i've visited many Costcos in small towns with less than 50K people"

    Yet how many people feed into the wider area of those towns? I think you will find it more than the 50,000. Lets you give you an example in one city I own a home, Bellingham, Washington state has a city population, typical university town of 100k. Wider area is a further 200k. One hour drive over from down town Vancouver BC.. Canadians look for a deal given their sales tax..thats another 500k visiting for various cheaper items. Wider B.C area passing through on the I5 well....

    lot of neighbours will drive 5-9 hours easy to get somewhere on the upper west coast of the USA.

    I have an apartment in LA..that transport system doesn't work, yet has a wider population of 10 million. They easy to have sites closer in.

    Auckland may be a transport mess however if you don't have the money to wine and dine or into boating, head out of town for long weekends much to do really, nota lot more than any other urban environment? Only a handful shopping malls..the place is like a huge town rather than a city, look how many travel widely to go to Syliva Park, shows so little to do.

    The place has a substantial population greater than most US cities..1.5 million..take a look at main cities with a greater population in the US..actually not as many as you would think.

    I know heaps of people that buy in bulk here..they go to the super more often as fresh fruit does not last long...

    So market is there however do not believe we will see the deals like in the US rather the Australian experience which is more moderate...it will do well yet not be a main disruptor to the NZ wide market place. Not convinced they will look at sites like Wellington and Christchurch...major drop off on potential market depth.

    If they are doing cheap fuel, it will be a loss leader or otherwise they can only do it by direct importation, like Gull.
    Last edited by Raz; 12-06-2019 at 09:48 PM.

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