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Costco is going to invade cut-price petrol market

US RETAILER Costco is seeking to break into Australia's $15 billion-plus discount petrol business, currently dominated by Woolworths and Coles, by selling its own heavily reduced fuel at prices below those offered via popular supermarket shopper-docket schemes.
Costco, which operates a warehouse store in each of Melbourne, Sydney and Canberra, has requested room to build petrol stations at a second store slated for Sydney and for its first in Brisbane, and is awaiting council approval on both.
If the petrol outlets are approved, it will be the first time Costco can offer petrol to its local members along with its range of drastically discounted food, liquor, clothing and electrical products that has made its warehouse-style outlets so popular since they arrived in Australia three years ago.
''If you can sell vegemite at a cheaper price on a full pallet, or a kilo tub, why can't we sell gasoline?'' Costco's Australian managing director, Patrick Noone, said.
However, Melbourne motorists may have to wait a while for their own cheap fuel. Costco's maiden store in Docklands doesn't have room for petrol pumps, nor does the new store being built in Ringwood.
But Mr Noone said that as the discount supermarket sought new sites for warehouse stores it would favour properties and zoning laws that would allow as many as six petrol pumps for members.
Costco plans eventually to open as many as 20 outlets in Australia.
Mr Noone believes the retailer will be able to sell petrol at prices below those available through the shopper-docket schemes operated by the nation's biggest supermarkets, which typically reward customers with discounts of 4¢ a litre.
Cheap petrol is huge business for Costco in the US, where discounted fuel pulls in drivers and generates about $US7 billion ($A6.7 billion) in annual sales. In 2010, Costco, the world's eighth-largest retailer with more than 500 stores in the US, Canada, Mexico, Britain, South Korea and Japan, sold 8.7 billion litres of petrol at its 343 petrol stations in the US.
''The petrol stations [in the US] are busy all the time,'' Mr Noone told BusinessDay, ''the [petrol] is usually a few pennies per litre better off and it attracts members, for sure.''
Costco shoppers pay an annual membership fee of up to $60 to shop at the warehouse outlets, which specialise in household goods and food in bulk, and even luxury items such as diamonds.
A move into petrol would be a direct pricing challenge to Woolworths and Coles. Although Costco still has a tiny store footprint in Australia compared with the major supermarkets' 1200 combined co-branded petrol stations, it would win bragging rights for the cheapest fuel in the country. This could peel customers away from the supermarket majors.
Both Woolworths and Coles have pulled in billions of dollars in annual sales through their petrol offer, with the supermarket groups operating about 600 branded petrol stations each. Usually customers receive the 4¢ discount if they spend more than $30 at the supermarket, but the discount can hit as high as 40¢ a litre during promotions.
In July, the Australian Competition and Consumer Commission said it would scrutinise shopper-docket schemes to see if competition was being undermined. But an earlier investigation found no proof of anti-competitive behaviour.
Latest financial figures show Woolworths, with its joint venture with Caltex, had total petrol sales of $6.7 billion in 2011-12, up 11.4 per cent. This generated pre-tax earnings of $127.1 million for Woolies.
Coles Express, which includes petrol through Shell, had sales of $7.5 billion last financial year, up 11.5 per cent, while pre-tax earnings were roughly $124 million.


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