impact of costco on wow and wes, page-6

I recon it could be very significant for a couple of reasons:

If we are entering a longer term low growth environment then mum's saving dollars will be critical to household budgets and the large low-cost weekly shop at costco could become the norm. Sure, two income time poor families might not have the time to travel but still a sizeable percentage will.

The supermarket duopoly has generally the highest profit margins and most expensive basket of goods in the west(as proven by a study looking at 10 year changes in cost of supermarket basket of goods across OECD countries I remember). Dupolies making cosy duopoly type profits are ripe for competition as incentive is very high for for new entrants, especially those with a lower cost model and different approach (read low cost airlines a decade ago).

Woolies and Coles have squeezed just above everything out of the supply chain they can. They cannot get any more syergies in transport, Oz wide single supply and distribution centres or standover purchasing tactics with ultra-marginal primary producers. The last frontier is importing all food stuffs from Vietnam or such on mega size deals and by-passing Oz producers. However, these are exactly the sort of places Costco will source their "one-line only supply" from at the lowest possible global cost.

Woolies and coles can only drop costs and therefore profits to stay competitive with the likes of Costco or lose large market share, which equals volume, which equals economies of scale, which equals profit. They are at the top of the mountain with no-one left to screw and competition on it's way.

goodluck