Consumers Go (Warehouse) Clubbing

Mar 04, 2010
George Anderson

By George Anderson

Wall Street may have had problems with earnings per share
coming in lower than predicted for Costco and BJ’s yesterday, but the numbers
suggest those two chains along with Sam’s are in a pretty good shape compared
to many others in the grocery business.

Both Costco and BJ’s reported that
memberships, customer traffic and revenues were up over the last quarter and
same-club sales were up nine percent and 4.6 percent respectively. This followed
Sam’s same-club gain of 0.7 percent reported last month.

The three warehouse
club operators have largely maintained their bottom line balance while traditional
supermarket operators have seen revenues and margins erode, despite heavy
promotional activity.
There is some thought, however, that tighter pricing by supermarkets may help
the channel gain some share currently held by clubs.

“The warehouse is more of a destination,
more of a trip,” Adam Hanft, CEO of
Hanft Projects, told “Supermarkets can capture business
from warehouse clubs as they emulate their model because of proximity.”

Hanft said warehouse clubs could create a sustainable difference by not becoming
too set in inventory selection and adding the excitement of the hunt to the
shopping experience.

Clubs, he added, have a built-in advantage because club
memberships make consumers “feel
like they’re in a special group, and everyone loves to get past the velvet

Discussion Questions: Are warehouse clubs fully expoiting the advantages
they have over retail food competitors?
Are the clubs, collectively or individually, in need of reinvention or will
they continue to roll along as-is?

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7 Comments on "Consumers Go (Warehouse) Clubbing"

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Carol Spieckerman
11 years 2 months ago

Warehouse clubs often get portrayed as hidebound and change-resistant; however, I don’t see this being the case any longer. Costco’s Kirkland private label could reasonably be blamed for other retailers’ bold moves in private branding and keep-them-guessing treasure hunt strategies. Sam’s recently-announced “Tastes and Tips” program, which will leverage a third party demo provider (Shopper Events) to manage all in-store demos, promises to take a beyond-the-hairnets approach to demos by coordinating in-store shopper interaction across multiple categories. At the same time, Sam’s is cutting back on labor costs and focusing on food more than ever before.

I’m expecting great things out of the warehouse channel if for no other reason than they continue to raise the bar for one another!

Doron Levy
Doron Levy
11 years 2 months ago

The value conscious consumer that still has money to spend will embrace warehouse clubs. I can see more SKU allotment in grocery and expansion of fresh and frozen food categories at Costco (Sam’s Club high tailed it out of Canada last year). Costco needs to take note of expanding club pack sections at groceries like Loblaws and Sobeys. Granted, you are only looking at 24-48 feet of product but the SKUs are for everyday goods. That may mean one or two or three fewer products in the cart at Costco.

The Kirkland brand is the ace up their sleeve. The line is massive and covers everything from jeans to freshly prepared meals. That combined with Costco’s no hassle return policy makes for strong competition. No Frills has just recently introduced a no hassle, money back guarantee. I think we will see more direct competition between grocers and clubs in the near future.

Doug Stephens
Doug Stephens
11 years 2 months ago

One really interesting point that will be revealed when the 2010 US census data is captured and compiled will be the rise in the number of multi-generational households in America. The number should come in at approximately 10 million and due to a host of employment and economic factors facing young people, we expect this number to rise significantly over the next 10-20 years.

I see these households as perfect candidates for club offerings given their high household consumption levels but have yet to see Sam’s, BJ’s or Costco recognize them as a segment.

Max Goldberg
11 years 2 months ago

My primary comparison is Costco and Ralphs. Not only does Costco have better products, they have significantly lower prices. My family does most of its general grocery shopping at Costco or Trader Joe’s and uses Ralphs for those items that the other stores don’t carry. What began as necessity during the Southern California grocery strike, has become habit.

David Livingston
11 years 2 months ago

I personally think Costco sets the bar for this industry. One problem Costco creates for the others is they don’t dance so much to Wall Street’s tune. That makes it hard for their competitors to copy. If Wal-Mart won’t pay Costco level wages, how is Sam’s Club going to be able to get good employees? I think Coscto will continue to reinvent while their competitors make only lateral moves.

Anne Bieler
Anne Bieler
11 years 2 months ago

Warehouse shoppers are extremely loyal–the limited selection makes the shopping a true destination trip–shoppers know what to expect, and easier to select. Products in these channels have been carefully considered for their value to target shoppers–if it doesn’t sell, it’s gone. Without the advertising and promotional support, products have to “sell themselves” from the aisle–the product and package format have to be right to deliver.

There is opportunity ahead in working with manufacturers to develop products that resonate with shopper wants and needs. Loyal core shoppers, great data, control of shelves–opportunity to differentiate successfully in many categories.

Jack Pansegrau
Jack Pansegrau
11 years 2 months ago

I agree with Max Goldberg–the SoCal grocery strike made our family a complete convert to Trader Joe’s [5-miles] for 75%, Costco [9-miles] for 20% and Ralph’s [2 blocks] for the 10x per year trip for the quick gallon of milk or ‘branded product’ not available at the other two. A Fresh & Easy will open 4 blocks away and completely replace Ralphs for those ‘quick trips’ but will not replace Trader Joe’s.

It’s all about price/value, ease of shopping (just try to find one item in a 50k Ralphs–it’s impossible and compare that to TJ’s, is so easy–fewer SKUs and better products) and ease of return–no receipts ever needed–no questions….

RETURN POLICY is huge for us, making Southwest Airlines (yes, legacy airlines–airfares are like a product and only Southwest permits ‘returns’ without a restocking fee), REI, Trader Joe’s, Walmart and Costco tops on our list.


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