The local boss of US retail giant Costco is more than ready for a price war if Woolworths launches a new battle for shoppers by slashing food and grocery prices.
Woolworths, the nation’s largest supermarket group, reports its March quarter sales results today and will brief the market on its strategy to rejuvenate its struggling food and grocery business, which is expected to include investing $500 million into lower shelf prices.
But Patrick Noone, Costco Wholesale Australia’s chief executive, said the warehouse chain would maintain its position as the cheapest retailer for its lines of groceries, apparel and consumer electronics. He welcomed a price war with the full-line supermarkets, saying it was good for consumers and the industry.
“It’s great for the consumer and I think anything that drives more competition is good for the industry, good for suppliers and good for retailers,” Mr Noone told The Australian.
“So when it comes to a price war I think whenever the consumer wins it’s the best thing for Australian retail, and the more efficient a retail market is the better it is for consumers and the industry overall.”
If Coles and the independent supermarkets supplied by wholesaler Metcash are forced to follow Woolworths, it could see the breakout of a new price war.
The strategy is also squarely aimed at new entrants, such as German discounter Aldi and Costco, which have been stripping customers from the market leaders.
Some analysts fear a price war would seriously erode supermarket industry profit margins, worsening returns for shareholders.
Coles is to hold a board meeting today and the renewed threat from Woolworths is expected to be on the agenda, as well as an aggressive rollout from Aldi, which is poised to open hundreds of new stores across South Australia and Western Australia.
Mr Noone said Costco was “engaged in a price war every day’’ for shoppers and he thought Australians were now shopping across supermarket brands with reduced loyalty to single stores.
“I think they cross over,” Mr Noone said. “I don’t think any retailer in Australia offers 100 per cent of what a consumer wants and there is an element of cross-shopping that goes on.”
Since launching in Australia in 2009, Costco has opened seven of its large warehouse stores and snatched market share from a range of retailers, apart from the supermarkets, through its offering of cheap apparel, outdoor equipment and consumer electronics.
“We are growing (the) business, and we are taking market share, a small percentage, from every different kind of retailer.”
Mr Noone said Costco was constantly checking its prices with that of its rivals and was maintaining its price gap despite intense competition from Woolworths and Coles, as well as general merchandise stores such as Big W, Target and Kmart.
“Everything changes in retail every day. Prices can go up 2c or down 2c, but for the most part we are showing savings on everything we sell.”
Costco sales in Australia have increased rapidly as its warehouses have rolled out into Victoria, NSW and Queensland, with annual revenues almost tipping $1 billion.
For fiscal 2014, the retailer recorded a loss of $8.59m, a turnaround from a $1.8m profit in the previous year. Revenue for 2014 was $878.5m.
The US discounter uses a membership model to drive sales, with shoppers paying annual fees to join the Costco club that then allows them to shop at the warehouse-style stores.
Extracted in full from The Australian.