23 hours ago
2
Australians are willing to drive further to stock up on household essentials, fresh food, electronics and appliances from Costco, boosting the American discounter’s profits above rival Aldi, which has more than 600 stores.
Costco sold nearly $12.6 billion worth of bulk-packaged groceries, clothing, tech and other merchandise in the 12 months to August 31 as customers spread their grocery dollars across a broader range of retailers, searching for value over convenience.
The first Costco in Australia opened in Docklands, Melbourne, and became one of the top-performing stores globally.Credit: Getty Images
The bulk-buy discount chain, unique for its membership-only model, operates 15 warehouses across Australia and is slated to open two new stores in Victoria and Western Australia in 2027, with the eventual goal of running 35 as it quietly expands its national footprint over the next few years.
“Costco have played a long game. They’ve waited for the right sites, but when they’ve opened them, they’ve done them very well,” said retail strategy consultant and OC&C Strategy managing partner Jeremy Barker.
“They’re great outlets, and their proposition is clear. It’s branded goods, but really good value.”
Supermarket giants Woolworths and Coles have embarked on an aggressive price-slashing strategy to win back customers after a strong backlash from customers and politicians last year over accusations of price-gouging led to households shopping around and comparing prices.
Financial reports filed to the corporate regulator obtained by this masthead shows Costco netted nearly half a billion dollars ($499.2 million) in profits after tax, making it more profitable than Aldi, which operates more than 600 stores in Australia. The German discount supermarket’s local sales grew to $13.3 billion and notched profits of $403.7 million in 2024.
Costco’s private label Kirkland-brand jeans line a display table at its Docklands store.Credit: Bloomberg via Getty Images
Aldi and Costco have distinct offerings that appeal to many Australian shoppers, Barker said. Aldi has previously considered moving into the bulk-buying space but decided against it after observing shoppers tend to stick to a certain budget.
“For a particular type of consumer who wants value, trust and brands, Costco is actually considered fun to shop,” said Barker. “[Aldi and Costco] do better than Coles and Woolworths on value.”
The first Costco was opened in 1983 in Seattle, Washington by co-founders Jim Sinegal and Jeff Brotman, who ran an “inverse retail” model in which profit came predominantly from fees. Rather than the industry-average mark-up of 25-30 per cent, they capped mark-ups at 15 per cent, and buying items in massive volumes helped secure major discounts.
Costco operates more than 900 stores across 14 markets, most (623) of which are in North America. Australia became a top-performing market for Costco after opening its first store in Docklands, Melbourne, in 2009. It consistently ranked among the top five best-performing stores globally within a few years.
Store locations are chosen carefully due to the need for large amounts (14,000 square metres) of floor space, hundreds of car spaces, and proximity to high-population growth areas and transport corridors to ensure its high-volume, low-margin model will succeed.
Costco’s most popular items include pantry staples such as cleaning supplies and toiletries, while its private label brand Kirkland Signature is highly sought after, particularly its 3-ply toilet paper, $6.99 rotisserie chicken, baby wipes and massive jars of cashews and almonds.
Loading
During the ACCC’s supermarket inquiry in late 2024, Coles chief executive Leah Weckert noted Australians were willing to travel long distances to stock up on toilet paper from Costco, which pulls about six to eight times the sales of a typical Woolworths or Coles store.
“When a Costco opens, we do see a significant impact, millions of dollars of impact to our network through their openings, because customers are now basically buying a whole heap of products that they would have otherwise been buying from us in smaller quantities each week,” Weckert told the inquiry.
The Albanese government has banned price-gouging in Woolworths and Coles. Supermarkets must charge only a reasonable margin on products under the amended Food and Grocery Code, which comes into force on July 1.
Costco’s beef and pork has been awarded by comparison website Canstar Blue as the overall most satisfied customers in the supermarket meats category in 2025.
The chain raised its membership fees to $65 in September 2024. While about 2 per cent of total revenue comes from memberships, these fees account for more than 60 per cent of operating profits.
Costco Australia was contacted for comment.
The Business Briefing newsletter delivers major stories, exclusive coverage and expert opinion. Sign up to get it every weekday morning.
Most Viewed in Business
Loading
