Economics - Case Study on Costco (2010)

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Costco - let the grocery wars begin

Author: John Rolfe

April 16, 2010

THE arrival of retailer Costco in Sydney is going to push down the price of shopping. And you won't even have to be a customer to benefit.

As UNSW associate professor and competition expert Frank Zumbo said yesterday: "I have no doubt that once these Costcos are in full swing you will see significant pricing pressure on Coles and Woolworths."

Premier Kristina Keneally yesterday confirmed a report in The Daily Telegraph that planning authorities had set aside the objections of Westfield and others, allowing Costco to build its first Sydney store, on Parramatta Rd at Auburn.

The store should open next year -- along with a new intersection to cope with the expected traffic.

Ultimately the US giant hopes to have five Sydney sites and maybe one in Canberra. It believes getting the OK for the first store will make it easier to get consent for the rest.

Westfield and other mall operators strenuously objected to Costco's $60 million Auburn proposal.

Professor Zumbo said Costco "would suck customers into Auburn, away from other shopping centres".

The cornerstone tenants of those malls are Woolworths and Coles.

In other markets Costco has been able to undercut competitors similar to Woolworths and Coles by as much as 25 per cent.

Costco's cost of doing business is about 10 per cent of revenue while Woolworths' is 20 per cent.

A price comparison yesterday by The Daily Telegraph showed Costco's first Australian store, at Docklands in Melbourne, was selling Vegemite for nearly 20 per cent less than Coles and 10 per cent cheaper than Woolworths.

Coca-Cola was 44 per cent less than at Coles and 32 per cent less than the Fresh Food People.

Cold Power laundry powder...