Costco in NZ

COMMENT, NZ Herald, 7 August 2022.

Sneak peek inside Westgate, Auckland site – will Kiwis pay $60 membership fee just to shop there?

Leaked photos from inside Costco’s new $100m Auckland megastore reveal pallets of American snacks starting to be put on display. Development of New Zealand’s first branch of the US-based retail giant (Costco is the world’s second-largest retailer after Walmart) is underway with an announcement of when it’s likely to open is due to be made within a month. It will sell everything from diamond rings and car batteries to coffins and cooked chickens.

Photos posted to the Costco NZ Fans Facebook page – a group started by a store superfan which now has more than 67,000 Kiwi members – show staff in high-vis gear ready to sort just-arrived products. Refrigeration trucks have also been photographed arriving at the site with frozen goods. The bulk goods stacked high on pallets – the store has no shelves – include Ruffles chips, Tropical Fields coconut rolls, sake, and the caramel popcorn snack Orville Redenbacher’s Poppycock.

Customers must buy a $60 membership card to shop at the 2.7ha site at Westgate, on Auckland’s northwest fringe. The store will be the size of two football fields, at 14,740sqm. The fee is $60 no matter which country it was purchased in and the same card can be used worldwide. There are more than 111 million Costco members worldwide but the managing director of Costco Wholesale New Zealand, Patrick Noone, is keeping tight-lipped about how many Kiwis have signed up so far.

Pop-up membership stores have sprung up around Auckland including in Silverdale, Ponsonby, Avondale and Henderson, to ease demand on the Westgate sign-up office. Costco is one of the few retailers in New Zealand that charges a membership fee to shop there. Would-be shoppers must pay $60 upfront for a customer card that allows you and an additional household member to shop at the store and at its nearby service station.

Will Kiwis pay $60 to shop there?

Mike Lee, associate professor of marketing at Auckland University, says Costco appears to have a smooth strategy, refined globally, to create the incentive for customers to pay for a $60 membership card. Lee himself has already signed up for one, lured by the cheaper petrol Costco was offering when it opened its Westgate service station in April. He expects other customers will also be tempted by the fuel savings.

“New Zealand is such a small place and there is one Costco so if there are good deals that reduce the cost of living in Auckland then word of mouth is a powerful thing,” he says. “If people hear from a family member or a colleague who has a membership that they have saved $50 on something, then that is all they need.” Lee has also been impressed by Costco’s slick word-of-mouth marketing and social media presence. “I haven’t seen any advertising and that in itself supports their brand value of buying in bulk and passing savings to the customer.

“If people with memberships like me saw they were advertising heavily they would question if their membership fee was going into advertising or getting better deals.” Lee says the hook to getting New Zealanders to become regular Costco shoppers will be the price of fresh produce on offer. “We know they offer cheaper prices on the processed goods but if they can do that for fresh food and vegetables, that will make a difference. “New Zealanders are quite loyal to New Zealand brands and companies but there is also a cost of living crisis,” Lee said. “Costco is also entering the market at a time there is some mistrust over pricing and people are sick of the duopoly.”

Other membership-only supermarkets such as Gilmours could suffer because of Costco and may need to change strategy, Lee says. Gilmours welcomes shoppers from businesses, clubs, charities and not-for-profits but Lee says they might benefit from allowing everyday customers to shop there. There is also a benefit for New Zealand brands if they can get their products into Costco.

“If you think of a brand like Pic’s Peanut Butter from Nelson and it gets into Costco and does well that may open it up to other Costco stores,” Lee said. “They could say ‘it’s doing well here, how will it do in Singapore’? That’s something local supermarkets can’t do.”

The Aussie experience: Do shoppers get value for their membership?

Australia now has 13 Costco stores and earlier this year comparison website Canstar looked at whether the $60 fee was worth it. It found the membership paid for itself if you had a large family and managed to shop a few times a year. Canstar also reported a Costco membership could also be worth it for smaller households that entertained a lot or for those shopping for an event such as a camping trip, barbecue or birthday party.

The savings on large homeware items such as televisions and whiteware were often also worth forking out $60 for the membership. But Canstar warned bulk deals did not always equal savings and said to make sure to check the unit pricing of any product you want to buy. “For example, the label for Costco’s 1kg Nutella tub would show the unit price per 100g, in addition to the selling price.” Bulk products were often not used before expiry so they wasted money and contributed to food waste, Canstar said.

‘The Warehouse is probably the most likely to be impacted’

In New Zealand, marketing expert Ben Goodale says along with fan excitement on social media, Costco has been clever in creating a buzz around the opening. Memberships have to be purchased in person at pop-up stores and then members had to have their photo taken at the office in Henderson. “Clearly there’s hot demand for membership, but they could have easily sold it online. But that’s not as newsworthy. “We should expect a few marketing stunts around launch time with highly desirable items like flat-screen TVs, jewellery or branded sneakers at jaw-dropping prices.”

Goodale didn’t believe Costco would put anyone out of business as it was more of a “destination” store, like Ikea, rather than an everyday shopping experience.  “They will be a place where people will head to stock up. The Warehouse is probably the most likely to be impacted, but again with only one Costco store in NZ, not significantly,” Goodale said.

“These are stores that are so big you want to stop and have a snack while you are there. Both have cafes, where Ikea is famous for its meatballs, Costco is for hot dogs and pizza.” The massive aisles of fridges, washing machines, and whiteware that will greet shoppers were described by one Herald reporter who visited the Brisbane store as “Briscoes on steroids.” Costco is a global retail brand that has a buzz about it like Ikea, Sephora, Zara and H&M, Goodale says.

“The sort of brands that people talk about going to when overseas and perhaps sharing some treasured item they bought there,” he said. “Most of these are here now. Costco is a bit like that, but more because of the slightly unusual model with membership and the sheer scale of the place and the sense of value.” Costco’s Noone says the business has already employed hundreds of people in setting up the Auckland store – and they’re still looking for more.

“We have spoken with many locals who are already Costco fans from their experiences in warehouses around the world, as well as those who have expressed excitement at having another retail option nearby,” Noone said.

“We have also been working closely with the council and Government officials in the lead-up to opening day.”

Fuelling competition: Costco takes on the established service stations

When Costco NZ opened its petrol station in April, marketing expert Lee was among those signing up.The associate professor of marketing at Auckland University knows all of the tricks in the marketing handbook, but even he was taken in by Costco’s slick operation. “Full disclosure, I do have a Costco membership because the fuel prices were too attractive to avoid,” Lee says.

Costco opened its service station in April with prices for 91 fuel at $2.50 per litre, 95 for $2.60 per litre and diesel for $2.10 per litre. Lee pulled into the Costco station at Westgate not realising he needed a membership to fill up. “I didn’t have a membership card and I turned around and there was a person right there with everything I needed to sign up all the paperwork, they had it all sorted and it was very helpful and all very smooth,” he said. “That in itself is very clever marketing because if you pick a commodity people need, like petrol, and you add value, great service and convenience then you hook them in.”

However since the April launch, and with fuel prices spiking due to the war in Ukraine, Costco has struggled to be consistently cheaper than rival petrol retailers. “Initially the prices were really attractive and but now they are not as drastically cheap as they were,” Lee said. “That too is very clever. People buy the membership for the fuel saving and then because they have that you can guarantee they will be in the store when it opens.”

Noone says the increase of prices at the pump is directly related to wholesale fuel increases in this country. “Our fuel prices at the Westgate station have followed the recent market fuel cost increases,” Noone said. “However, as with Costco’s merchandising strategy, we remain significantly competitive, offering the highest quality product at the best possible price.”

The superfan: ‘The savings are well worth it’

Jen Davenport is such a big fan of Costco that she’s helped set up a Facebook page tracking the Auckland store’s progress. One of seven administrators of the Costco NZ Fans page, she says 40 per cent of people following the pages have never set foot in a Costco store and have plenty of questions about how it works. When Davenport lived in Brisbane she was a regular at her local Costco. Now she lives in Waimauku – a short drive along State Highway 16 to Costco NZ’s site. She says many potential customers’ questions centre on having to pay a $60 membership fee.

“The way I explain it to people is that it is $60 a year but you get a second card for another in your household so it’s 57 cents a week,” Davenport said. “The savings are well worth it. I have been using Costco for fuel and within three fills my membership was paid for with the savings.” Davenport’s almost daily Facebook posts keep fans updated with progress at the store, where you can sign up for memberships, and what to expect when the doors open.

She says the best way to stretch her dollar is to do a monthly shop at Costco. “We buy in bulk and then use our local greengrocer to do a top-up.” Davenport has a prediction about what might happen when the Auckland store opens. “We say the ‘Costco Effect’ is when anytime there is a Costco opening all of the other surrounding retailers all of a sudden have big sales and specials. “They did this with fuel recently where all of a sudden fuel prices dropped near Costco because of their petrol prices – it will be the same with the supermarkets closer to the time.”

By Kristy Wynn.

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