business news in context, analysis with attitude

We reported yesterday about a Wall Street Journal piece saying that Costco “averages $795 a square foot in annual sales, far above the $516 a square foot at Sam's and more than double the national average at malls. The average Costco store posts $115 million in average annual sales, nearly double Sam's Club's per-store average and almost triple per-store sales at BJ's. And with 449 warehouse clubs and $47.1 billion in annual revenue excluding membership fees, Costco easily outsells Sam's Club with 550 locations and $37.1 billion in comparable revenue.” Part of the reason that Costco does so well is that it attracts more affluent consumers, sells a broader range of products (ranging from champagne to gasoline), and seems better able to stimulate impulse purchases and treasure hunts that lead to higher average transactions.

Our comment: In other words, Costco competes successfully with Wal-Mart by differentiating itself from the Bentonville Behemoth and from everybody else with an unusual array of products and services. A lesson worth learning.

MNB user Al Nissen wrote:

We have a Wal-Mart 5 miles away, and a Costco 10 miles away. My wife has to drag me to Wal-Mart, while I can't wait to take her to Costco. It's all about the shopping experience, which is as different as it can be. Narrow crowded aisles vs. lots of space... lots of checkstands open vs. always too few...

To me, Costco is like a kid going to a candy store to see what's new and try what's being sampled; while going to Wal-Mart is like going to the dentist for a root canal.

One MNB user responded:

Another thing you forgot to mention is that Costco has a higher penetration with individual consumers compared to business customers. Sam's Club is still dominated by individual consumers, but has a much higher percentage of business customers than Costco. Typically when I am doing my market analysis studies for supermarkets, Sam's Club will have only a minimal impact on the supermarket competition when they open. When Costco opens, they take a large permanent slice of the market share pie out of the marketplace.

MNB user David Hanneman wrote:

There's another Costco difference that's been getting some press these days. Costco pays their employees at a noticeably higher rate and offers a better total benefits package than their competitors do. That fact and the fact that Costco blows away the competition's revenue numbers are not mere coincidences. As you've so clearly stated many times, it's what happens on the floor in the store that matters. Employees that are treated as vital partners in providing the total shopping experience for the consumer, and paid accordingly, will always help deliver the top line and bottom line.

And another member of the MNB community wrote:

Costco also has one other advantage; their Kirkland brand. Over the years I have learned to trust it. The Kirkland brand of canned tuna is FAR superior to StarKist and Chicken of the Sea for instance. The Kirkland toilet paper is the best. The Kirkland version of DayQuill and NyQuill is every bit as good as the name brand at a fraction of the cost. The Kirkland fish oil capsules are excellent quality and a fabulous price. Top quality and great price over a substantial period of time has earned Costco customers loyalty. Virtually all of our shopping is at Costco and Trader Joes (another great merchant with an emphasis on quality and value).

Yet another MNB user wrote:

Apparently the relative situation in warehouse clubs has not changed much. Working with Sam's Club associates on a category opportunity almost ten years ago, we were discussing how other clubs handled this specific category. I recall the Sam's associates talking about how Costco was outperforming them (overall) by essentially the same sort of measures and scope you described. Your point is valid. It is possible to compete successfully against the Bentonville Behemoth. Costco has done it well for many years.

However, into every life a little rain must fall…as one MNB user chimed in:

Saw your article this morning. I’ve been a big Costco fan for years (runs n the family), but I was in the Waltham, MA store last week and the check out lines were so long, I actually walked out of the store without completing my purchase, a first for me.

I’ve found myself increasingly frustrated with all the grocery retailers in the Boston area, each for their own reasons. Shaws is massive and yet I can never find anything there. You have to visit 2 or 3 locations within the store to actually compare the full selection of most items, for instance cheese or chips. Their lines are long, and their produce is way overpriced. Trader Joe’s is more reasonably priced, but doesn’t carry much produce. But their breads are better than Shaws. I’ve never been able to tell much of a difference between Shaws and Stop & Shop. I recently discovered Russo’s in Watertown for excellent and affordable fresh produce, but that’s their specialty, so you can’t get everything you need there. I find myself dreading my weekly grocery shopping because I know I’ll spend more time than I want to, I won’t be able to find what I’m looking for, and I’ll be standing in lines to check out for at least 10 minutes – I’m surprised there isn’t more grocery cart rage. I guess I was just spoiled growing up in northwestern Washington State.

By the way, we had an exchange yesterday with an MNB user that, according to some emails that we received, may have given the wrong impression.

Criticizing our of our commentaries, this MNB user wrote:

Once again you've shown that when someone disagrees with you, there is something wrong with them. Get over it!

To which we responded:

No, no. Just because someone disagrees with us doesn't mean there is something wrong with them.

It just means that they're wrong.

Big difference. 🙂

One of the emails we got yesterday observed:

This is great!!! --- you say the things many of us wish we could but refrain from so as to play nice!! I'm comfortable supporting you on this because I've disagreed with your view plenty of times ---- Still love the insight. Hate that you are wrong at times though.

It wasn’t our intention not to “play nice” – just to have a little fun.

For the record, we have a wife and three kids. We get plenty of reminders of how wrong we can be, and how often.

But there’s nothing wrong with being wrong…as long as one is willing to listen and learn and engage in debate and discussion.

We sort of agree with Ayn Rand on this issue:

”There are two sides to every issue: one side is right and the other is wrong, but the middle is always evil.”
KC's View: