Identify the key differences among the various retailers mentioned in the case. What are the benefits and limitations of bricks-and-mortar stores and online stores? Summarise the challenges and opportunities the Australian retail industry might face in the future. What does Costco Australia need to consider to ensure that it will be competitive in the long term in the Australian retail industry?
Hypercompetition in the Australian retail sector
By Dr Saalem Sadeque, Central Queensland University
The Australian supermarket and grocery industry can be aptly described as hypercompetitive. In 2018–2019, the retail industry in Australia generated $103.4 billion of revenue and $4.2 billion of profit. The duopoly of Coles and Woolworths is being increasingly challenged by newer and leaner competitors such as ALDI and Costco, which have entered the industry with different business models designed to provide customers with value for money.
One of the relatively newer players in the Australian retail industry is Costco Wholesale Australia, which is a subsidiary of the US-based Costco Wholesale Corporation. Costco has established 11 stores in Australia based in Victoria, New South Wales, Queensland, South Australia and the Australian Capital Territory, with plans to open two more stores in Western Australia in 2020. According to Patrick Noone, the managing director of Costco Australia, the company is projected to operate up to 60 stores in Australia within the next 30–40 years. Costco’s business model is a unique one, with customers purchasing an annual membership for $60. This annual membership allows customers to shop in Costco at a discounted price and buy in bulk. The company sells a large variety of products, including fresh food, groceries, electronics, diamonds, tyres and petrol, among other things. According to Roy Morgan’s Discount Department Store Satisfaction Report, Costco achieved the highest customer satisfaction rating among the leading discount stores in Australia in 2018.
Private-label brands (PLBs) promise to be an important area of growth for the Australian retail industry. In the past, PLBs were considered cheap alternatives to major national brands and as a result did not generate a substantial amount of sales. However, retail customers in Australia have been increasingly accepting PLBs in the past few years. One reason has been the entry of ALDI, which primarily offers a large number of PLBs, some of which have been ranked as the best in their product categories. The success of ALDI has led the established retailers such as Coles and Woolworths to invest heavily in their own PLBs in order to remain competitive. This has resulted in better-quality PLBs at affordable prices. Sales of PLBs reached $17.7 billion in 2017 in Australia. Costco has clearly outlined that the sale of PLBs is one of its strategies, with its Kirkland Signature toilet paper becoming one of the fastest-growing products in Australia since its launch in 2017. According to Noone, Costco Australia intends to offer more private-label products under the Kirkland brand, provided that the quality is not compromised at lower prices.
Presently, the online grocery shopping market in Australia is not significant, with revenue of about $3.3 billion. However, with an annual projected growth rate of 10.9 per cent in the next five years, it is shaping up to be the next major battleground for the Australian retailers. Major retailers such as Coles and Woolworths already operate online shopping sites with promotional offers. Costco Australia also has plans to offer online shopping exclusively to its members and in the capital cities across Australia.
While Australians currently seem to prefer to buy groceries from bricks-and-mortar shops, the likelihood of online shopping becoming the preferred method for grocery shopping is keeping the retailers operating in Australia awake.
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Identify the key differences among the various retailers mentioned in the case.
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What are the benefits and limitations of bricks-and-mortar stores and online stores?
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Summarise the challenges and opportunities the Australian retail industry might face in the future.
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What does Costco Australia need to consider to ensure that it will be competitive in the long term in the Australian retail industry?
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