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Costco is Coming Ė The Barbarian is at the Gate.

Neil Retallick
A Friendly Society Perspective

Issue 74: August 2008
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I think it was in an article published by National Geographic magazine many years ago that the dramatic claim was made that at some time in the not too distant future computers would weigh less than 1.5 tons.
An incredible proposition.
I’m sure we can all recall some recount along this line.  Wasn’t Thomas Edison knocked back when he tried to sell his new invention, the light bulb?  Wasn’t JK Rowling sent rejection notices by a number of publishers before somebody took a different view?

The issue here is that we all know what we know but few us don’t know what we don’t know.

You will know that the American retailer, Costco, has announced it is opening its first store in Australia next year in Melbourne.  Costco is a remarkably successful warehouse retailer where access to the store is for members only.  A membership costs $50 for a year.  This retailer stocks only around 4,000 items across a wide range of products that includes grocery, electrical, health and beauty, wine and spirits and, in the USA, pharmacy.  Costco is the fastest growing (major) retailer in the USA today and recently was recognised in a national poll as the retailer with the most loyal customers.  Its cost of doing business sits around 10.5% and it has a policy that no item can be marked up to more than a 15% gross profit.  In fact, most branded product is marked up around 8%.

In a recent article, a respected journalist was contemplating how successful the Costco model would be in Australia.  Doubts were cast as to whether Australians would accept this notion of paying money up front to be able to access a store, its products and its prices.  I was reminded of those industry experts that doubted the ability of Aldi to gain a 3% share of the Australian grocery market.  A very limited range of private label products… it was going to be tough for Aldi to attract the average Australian.  Those industry watchers have long ago eaten those words, as this journalist will eat his.  Costco is a force to be reckoned with. It will be hugely successful – and its arrival in Australia does not bode well for the pharmacy industry.

Costco has a track record in the USA for successfully delivering community pharmacy healthcare in a discount, not to say grocery, environment.  In several years time, when Costco has stores up and down the east coast of Australia, it will add its voice to the existing grocery chorus that claims it can deliver community pharmacy to the average Australian in a responsible manner at a lower cost to the Government and to the average Australian. To date, no grocer has been able to claim any expertise in this area. Costco can. Years of it.   

And if you think the Government doesn’t care about what happens in the USA, think about the current PBS Reforms program.  This program has been developed and is being implemented by the Government because it has been watching what has been happening to the price of generic drugs in that market.

A barbarian is at the gate. 

Editor's Note: For an in-depth background for Costco, go to this Wikipedia link.



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