Costco is an opportunity for New Zealand brands

Wednesday, 12 June 2019

Bulk buy bargain retailer coming to New Zealand

Costco's first New Zealand store will be an opportunity for local brands to do some big business with the bulk retailer.

Costco's decision to open a three-level three store at Westgate in 2021 shows the country is big enough and strong enough to sustain a big new player coming in, Retail NZ spokesman Greg Harford said.

New Zealand had more growth in the total retail market over the last five years than all the Australian states except New South Wales, he said.

Food and Grocery Council's Katherine Rich said suppliers pitching to Costco needed to understand its unique format.

But which brands are most likely to be seen on Costco's shelves?

* Costco to also sell fuel from 2021

* Three reasons Costco is different from anything else in NZ**

'I would think they would be talking to the larger brands that are producing things in New Zealand but there's a clear opportunity for some of the smaller guys to leverage a bit of scale,' he said.

Managing director of the First Retail Group Chris Wilkinson said bigger brands would probably have existing allegiances but few would turn up their noses if an opportunity arose.

But artisan brands like Lewis Road would be unlikely to feature because they were a better fit with homegrown supermarkets, he said.

'I'm pretty sure Whittakers isn't part of Costco's Aussie range, while they are big sellers in Coles and Woolworths for a similar reason.'

While Costco said it was too soon to discuss which brands might have a look in, it would 'definitely be looking for local vendors [in New Zealand] as we get closer,' said a spokeswoman.

A number of suppliers already working with Costco that could have a head start.

Chair of the NZUS Council Leon Grice said New Zealand brands like Kim Crawford Wines and Bostock already featured prominently on the shelves of US and Asian stores, and they would probably go straight into the Westgate store.

'As I understand it they tend to have a policy of buying at least 60 per cent locally, to support local suppliers. So I would have thought that anybody currently supplying Costco are going to benefit immediately from selling into Costco in Auckland. New Zealand lamb is regularly in the Costco stores in the US,' he said.

Costco Wholesale is a multi-billion dollar global retailer.

Food and Grocery Council chief executive Katherine Rich said it would make sense to use existing local suppliers and would be a good indication that the giant was taking its new market seriously.

Greg Harford of Retail NZ said smaller suppliers could potentially scale up by supplying Costco.

'It would be great to have a respectful nod to local manufacturers,' she said.

Bostock New Zealand director David Brasell said his business supplied organic apples to Costco in North America, Taiwan and mainland China.

'We talk to their global purchasing teams and will be happy to talk to their local and global team about New Zealand supply once the time is right,' he said.

Costco is the largest supplier of organic produce in the United States.

Biogro New Zealand chief executive Donald Nordeng said, in the US, organic produce was Costco-branded. 'I'm not familiar what they are doing in Australia but I think you can bet it will be similar,' he said.

Grice said Costco had a reputation for working collaboratively with suppliers and that its philosophy could mean that organic suppliers might have more opportunity to get to scale with the retailer.

Costco opens up a completely new supply chain in Asia Pacific for New Zealand suppliers.

'You can't underestimate how important that is to competition and to exporters,' Grice said.

'Suppliers could leverage the relationship market themselves to Costco's Asia Pacific network,' he said.

Costco Australia and New Zealand managing director Patrick Noone at Westgate where Costco are looking to open a store in 2021.

Rich said being listed with Costco would help getting listed throughout the Costco network.

She thought food, beverage and grocery had a good chance as manufacturers.

Kiwi suppliers needed to be mindful however. Costco's format was unique and any business pitching to it needed to do their homework first.

'They're not the sort of retailer you just knock on the door and give it a crack. You have to work hard to understand the kind of products they want to offer their customers. Suppliers have to be educated to Costco's requirements,' she said.

Wilkinson echoed Rich, saying what set it apart from other retailers was its formula of often only taking the market leader, with any double up coming from its own-brand lines.

'Costco's model enables manufacturers to create special size packs that differentiate from those available elsewhere or simply supply as bulk - without the frills,' he said.

Local competitors such as Farmers, Kmart and The Warehouse face increasing competition from the likes of Costco, which has plans for stores in Wellington and the South Island at a later date, but The Warehouse appeared philosophical about the giant's arrival. A spokeswoman said that competition kept it on its toes and was great for its customers.

Kmart declined to comment. Farmers did not respond.