By Aimee Chanthadavong

As the members-only warehouse chain Costco prepares to open its Sydney store in 2011, its first Australian store in Melbourne, which opened in August 2008, has proved successful.

The company reported that its Melbourne store generated sales of $9 million in its first two weeks and it has now amassed over 75,000 members in Australia.

According to Verdict Research, the emergence of Costco within the Australian grocery market, coupled with consumers' willingness to buy larger packs, may result in Coles and Woolworths stepping up their larger pack offerings

Anne Marie Davis, Verdict’s practice leader, told Retailbiz that with the entry of Costco into the market, Woolworths and Coles may lose some customers.

“We certainly don’t think that Costco will make a huge dent in sales for Woolworths and Coles, for a start the retailer isn’t in a position to open new stores quickly, and food and grocery is only part of its offer, but given that these two retailers have such high market shares they are two of the obvious victims of any of success that Costco does have,” she said 

Verdict Research noted that the same way that Coles and Woolworths stepped up their private label offer in response to the market entrance of Aldi, they should also be mindful of Costco's strict rule that prices cannot be more than 14 per cent above wholesale costs.

Davis continued: “If Costco quickly acquires new customers it will be a positive signal that Australian consumers are open to switching to other retailers and to US style retail formats.”

Research conducted by Datamonitor between 2009 and 2010 found that 33 per cent of Australian consumers were frequently buying grocery items in bulk and that 40 per cent were purchasing private label grocery products. These results are partly driven by the fact that Australian consumers have large vehicles in which they can transport items, and large homes in which they can store groceries.

“The high number of consumers buying larger packs, compared to countries in Europe for example, supports the potential for Costco's successful expansion across Australia, and may also necessitate a response from existing retailers in the grocery sector,” Davis said in a statement.

Costco provides business and private members with bulk-packaged, low-priced goods from a range of product categories including groceries, clothing and homewares. It has also recently entered the retail market in Taiwan, Japan and Korea.