Costco contemplates more international expansion

As Costco Wholesale Corp. continues its international expansion, it is contemplating warehouse opportunities in China but is not yet ready to move on them, Richard A. Galanti, EVP and CFO, told analysts Wednesday.

“We recognize it’s a giant market, and every few years senior management goes over there and looks around,” he said.

“While we’re confident about what we do, and we’re very hands-on, we’ve got a lot of things going on in a lot of directions. We know somebody’s going to get there first, but when other people have gotten other places first, we do fine when we come in, so [expansion to China] will happen at some point, though I don’t know when. But we’re not ready yet.”

Although U.S. expansion will continue, the percentage of growth overseas will continue to rise, he said. “We are probably right at the mid-point of trending from the majority of locations in the U.S. to less than half in the U.S.,” he explained.

Expansion will continue in existing international markets, Galanti said, “and all of Europe is certainly an opportunity for us.”

Costco hopes to open a second location in Spain in the second half of fiscal 2016, he noted, “and we’re still fighting to get our first unit open in France.”

Galanti made his remarks during a conference call to discuss financial results for the first quarter ended Nov. 23. Net income for the 12-week quarter rose 16.7% to $ 496 million, while sales increased 7% to $ 26.3 billion and comparable sales, excluding gasoline, were up 7%, with average transaction size up 2.5% and average frequency up 4.5%.

Food and sundries, candy, deli and spirits were “relative standouts” during the quarter, Galanti noted.

Organic foods have risen to $ 3 billion annually, from about $ 1.4 billion two years ago, he said, “and it’s growing. I can’t tell you how quickly it will grow, but it’s certainly growing faster than our top-line overall.”

E-commerce sales were up 20% and represent just under 3% of total sales, he pointed out.


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Among Costco’s e-commerce activities is a partnership with Google Express in six U.S. markets — the San Francisco Bay Area, where testing started 10 months ago, plus Los Angeles and New York, with Chicago, Washington D.C. and Boston added in October.  “It’s too early to tell completely but we are seeing increased overall spending, and Google has been a good partner to work with,” Galanti said.

The company opened eight new warehouses during the quarter — six in the U.S., its seventh location in Australia and its second location in Leon, Mexico. Galanti said Costco has no openings scheduled for the second quarter, with a handful set for the third quarter and 20 openings planned for the fourth quarter for a total of approximately 30 new locations for the fiscal year, compared with 29 openings in fiscal 2014.

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