As a membership warehouse club, everything we sell at Costco has to be of better value than our competitors in the marketplace,” Costco MD Patrick Noone told the audience at a Packaging Council of Australia Industry Leaders Forum in Melbourne last week. “We have a margin cap of around 14 per cent, so if we can lower the price and sell more of it, that’s what we’re going to do.”
The warehouse-style chain, which turned over around $105bn in sales last year, is the fourth-largest retailer on the planet. With over 73.4 million members worldwide, Costco is increasingly making its mark on Australia, with six stores across Queensland, Victoria and New South Wales, with plans to expand into Western Brisbane, Adelaide, Melbourne’s outer suburbs, Perth and South Sydney. “When we opened in Docklands in 2009, it was our busiest opening day in the world. It was fantastic,” Noone said. “Then Sydney, which became the busiest opening day. Canberra, a little less so.”
Noone attributed the company’s success to its ability to aggressively compete on price. And, a key method of keeping costs down is by optimising packaging to reduce handling. In typical retail markets, every item is stacked by hand. In Costco everything is pallet-jacked. "Packaging and pallets are the core principle of driving operating efficiencies,” he said. “The more we can drive our own expenses down, the more we can lower our prices and sell more product. For us, the pallet is everything. The pallet is king in Costco.”
Minimising handling sees the company do away with anything even vaguely superfluous. With orange juice and milk, for example, packaging merely consists of placing a layer of bottles down on a plastic slip-sheet, then placing another layer on top – no plastic cartons or cardboard boxes. “I don’t want to touch it,” said Noone. “I want to drive it in, drop it, and take the plastic wrapper off and put a sign up.”
Nevertheless, Noone accepts that catching the eye of the consumer is still an important consideration. “We have a concrete floor, an open frame ceiling, some steel racking, and that’s all we have,” he said. “How do you make that warehouse exciting?”
The company’s solution has been to work closely with manufacturers to ensure their products present well on the pallet. Nutella, for instance, simply concentrates on making its 5-litre jars as visible as possible, rather than drawing attention away from the product to the packaging. “You don’t see brown boxes with a label on the side, you see a whole pallet of product,” said Noone. “It’s very exciting when you walk up to it.”
Since 2009, Costco has worked closely with suppliers to mould pallet packaging to suit the company’s needs. While some smaller producers still struggle to suit the warehouse-style format, others have adapted. “When we started off in 2009, we had a lot of brown boxes because local suppliers simply weren’t equipped to package with pallet branding,” says Noone. “Over the years we’ve evolved a little bit, and every manufacturer we are working with is starting to supply packaging that’s pallet ready.”
But, for businesses who find developing packaging to suit Costco difficult, Noone is insistent that getting things right is a collaborative, creative process. “We want to have an intimate relationship with all our packaging partners and our vendors. The only way we can find new and interesting items and to stay ahead of the curve is to have that intimate relationship,” he enthused. “I urge you to give us a call. We’re open for business. Spread the word.”
