Costco is assessing its options for a potential expansion.
The US big box retail chain has seen a sharp rise in membership and revenue since opening in Auckland's Westgate in September 2022.
It launched home delivery to members and non-members across Auckland last week, and is working on expanding to new regions.
Grocery Policy Expert Ernie Newman told Francesca Rudkin that he’s not all that convinced this expansion will pan out.
He says Costco is successful in the North American market as people are able to access it within a relatively short drive, but New Zealand is much more fragmented.
Newman says that New Zealand supermarkets go to where the consumers are, but Costco expects the consumers to travel long distances to get to them.
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Episode Transcript
Christ Church and Wellington could be next in line for
Costco stores. The US retail chain says it's working on
expansion outside of Auckland. Costco's Westgates store gained one hundred
and fifty thousand members within a year of opening and
just introduced home delivery to both members and non members
across Auckland through door dash. So is this the new
player in the grocery sector that we're looking for? Grocery
(00:22):
policy expert Ernie Newman joins me. Now, thanks for your time,
Ernie Gooda.
Speaker 2 (00:26):
Thanks.
Speaker 1 (00:26):
Do you think this expansion is likely to Wellington and
christ Church? I mean, now, it would be the time,
right the government's all in to make things happen.
Speaker 2 (00:34):
I'd love to think so, but I'm not at all
convinced on this one. You know, Costco is an unusual
kind of retailer. It's very, very successful in the North
American market, mainly, I think because of the high density
housing over there and the think they can form a
supermarket down and get huge numbers of people able to
(00:55):
get there with a relatively short drive. New Zealand is
a much more when it's sort of place, and somehow
I struggle to see how the cost home model will
really work in New Zealand or in fact, there's a
lot of countries outside North America.
Speaker 1 (01:11):
Do you think the membership holds people back?
Speaker 2 (01:14):
Not necessarily. I think the big problem is the concentration.
You know, most of the supermarkets in New Zealand spread out.
They have a site in every suburb and they basically
go to where the consumers are. Costco expects the consumers
to get in their cars and travel long distances to
(01:34):
go to them. So I think if Nicola Willis really
wants to make a breakthrough here and if she wants
Costco to be part of it, she needs to persuade
them to change their business model.
Speaker 1 (01:45):
Okay, and is Costco opening two more Is Costco opening
two more outlets going to have an impact or would
you also like to see the government still step up
and break up the current entities in place to make
an impact as well?
Speaker 2 (02:01):
Absolutely, the government needs to still step up. You know
Costco and Australia for example, they've been going in Australia
ten years or so longer than they have here and
they're still struggling to get to two percent market share
over there. You know, it's a very long hard road,
and I think that's because their business model doesn't particularly
well suit the conditions in either Australia or New Zealand.
(02:23):
So if I was Nikola Willis, what I'd be doing
is legally requiring Woolworth Australia and food Stuff to each
sell off, say one hundred or so supermarkets, and then
I'd be working with Costco to buy them, but to
run them in the way New Zealand super I turn
markets tend to run, rather than try to impose the
North American model here.
Speaker 1 (02:44):
Do you think they'd be out for that.
Speaker 2 (02:46):
I don't know, that's a question for them. But you know,
there's a big there's a good opportunity here for somebody.
You know, this is a highly highly profitable market which
is broken and we really need somebody to come in
with a completely new approach and bring back competition.
Speaker 1 (03:02):
I mean, I do know a lot of people in
Auckland who will drive the distance, you know, once a
month to do a big stock up of the non
perishables at Costco.
Speaker 2 (03:11):
Yeah, but do you know any in Hamilton or wanger
At will do that. You know, this is a decentralized country.
North America is very different and you know, the market
figures in Australia sort of speak to themselves that Costco,
after all, is the decade or so trying to get
into that market. Are still really struggling over there.
Speaker 1 (03:33):
Yeah, it's the problem, isn't it. It's the long term plan,
isn't it, Ernie, It's a.
Speaker 2 (03:37):
Very long term plan. But we have a short term problem.
You know, we've got kids going hungry here. We need
something to happen in the next year or two, not
in another generation. And that's why I think Nichola Willison's
answer is to work with Costco, but as part of
a breakup of the supermarkets we already have.
Speaker 1 (03:54):
Do you think an expansion would enable other players to
look at New Zealand is a good place to potentially
end the market?
Speaker 2 (04:01):
I think divestment, yes, I think it's the you Nichola
Willis has made has said some very good things, like
she's indicated that she is open to an enforced breakup
of the existing structure of the market. That's really really positive.
So I think there will be a lot of other
people sniffing around the market at the moment, but what
we need now is to move from the words phase
(04:25):
to the action phase and show that she's serious about that.
But again, you know, it's divesting what we already have
that'll unlock the potential.
Speaker 1 (04:34):
Thanks so much for your time this morning. That was
Ernie Newman. I tend to agree with Ernie. I think
this is a nice step in the right direction, but
it's a long term solution, and I don't think there
is one solution for this, this long running debate that
we have on how we break up the duropoly of
foodstuffs and will Worths. I think he's right. I think
it's going to need a variety of steps and actions
(04:55):
taken kind of across the board to see a difference.
Speaker 2 (04:59):
For more from it the edition with Ryan Bridge. Listen
live to News Talks it be from five am weekdays,
or follow the podcast on iHeartRadio.
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