At the beginning of January this year, Costco Supermarket, the first Costco supermarket in South China, officially opened in Shenzhen, and the scene was comparable to the Spring Festival!
Just 16 minutes after the door opened, 146,000 Hermes bags were snatched up;
The 1.5-meter-tall Disney Strawberry Bear was also robbed;
Cherries, cream cakes, fresh beef and other foods have either been sold out long ago, or they have been replenished until the clerk is soft;
The people inside the stadium were so crowded that they couldn't walk, and those outside the stadium had to wait in line for 5 hours to get in, and even the nearby roads were blocked.
According to official data, on the opening day, the number of new membership cards opened in Shenzhen stores exceeded 140,000, ranking first in the world. The sales on that day also set a new record for the opening sales of Costco, ranking first in the country.
As the world's leading membership-based warehouse supermarket chain, Costco's stores in China do not seem to be "adaptable", but have tightly grasped the hearts of domestic consumers.
What is it about Costco that makes consumers so crazy?
Costco was founded in 1983 in the United States.
Unlike ordinary supermarket chains, Costco only provides services to members, that is, consumers need to become paid members before entering the supermarket.
At first glance, Costco's barrier to entry is so high that sales are expected to suffer, but the fact is that in 2009, it was the third largest retailer in the United States and the ninth largest in the world.
Today, it has more than 500 stores in seven countries around the world, most of which are located in the United States, and the rest include Canada, Australia, South Korea, Japan and other countries.
In 2019, Costco opened its first store in Chinese mainland in Shanghai, and on the opening day, it had to suspend business in the afternoon due to too many people, and later it opened the remaining 4 stores in Jiangsu and Zhejiang regions one after another, which are still hot.
At the beginning of this year, the first store in South China finally opened in Shenzhen, which was also wildly sought after by local consumers, and sales reached a new high.
Why does Costco attract so many consumers?
The core point is that it has the ultimate cost performance, and this has two meanings:
One means that the same product sells at the lowest price, and the other means that it sells the best quality among the same price products.
In order to achieve "low price and high quality", the first thing Costco needs to do is to streamline the SKUs, aiming to be more expensive and not too expensive.
Compared with Walmart's SKU of about 20,000, Costco's SKU is only about 3,700, although there are few types, but the sales are very impressive.
In 2019, Costco's sales of a single SKU exceeded $40 million, far surpassing Sam's Club and Walmart.
Sufficiently high sales also give Costco the confidence to bargain, so that they can reduce prices to suppliers due to large-scale purchases, but suppliers are in a relatively passive position, and those who want to increase prices, or products with poor quality, will be ruthlessly abandoned by Costco.
Second, Costco's advantage is that the selection of products is high quality and affordable, and it is also very good at using the selection to attract and retain customers.
In each category, Costco will only select one or two brands, so it has hired a professional team to evaluate the products, and each product must be selected and tried by the management before it is put on the shelves to ensure that they have the potential to be "explosive".
In addition, it has created and launched its own brand Kirkland, which not only guarantees quality, but also makes the price about 20% lower than similar products, so as to attract customers to continue buying.
At the same time, Costco will also use low-priced high-end products to attract traffic.
For example, when the first store in Shanghai opened, Moutai, which usually sells for 2,500 yuan, only sold for 1,499 yuan, attracting 200,000 members within two months;
When the Shenzhen store opened, the Hermes bags sold for 180,000 yuan outside were only sold for 146,000 yuan, and they could make a profit when they were sold, which naturally made enough gimmicks for the marketiers.
But then the question arises, how can Costco's products be profitable if the price of its products is so low?
It turns out that it does not mainly rely on selling goods to make money, but on membership fees, which in 2022 Costco's financial report shows that membership fees account for more than 70% of net profit.
It also stipulates that the gross profit margin of all products cannot exceed 14%, while the gross profit margin of general supermarkets is 15%-25%, so many consumers think that spending money at Costco is equivalent to "making money".
What you buy is what you earn - it is not surprising that Costco's sales can continue to climb after firmly grasping the mentality of domestic consumers.
As an international supermarket, Costco must face two major competitors when entering the domestic mainland, one is a domestic supermarket, and the other is an e-commerce platform.
However, even in the face of such a strong opponent, Costco does not necessarily have the upper hand completely, why is this?
First of all, Costco's advantage over domestic supermarkets lies mainly in its strong supply chain strength.
Unlike most supermarkets in China, Costco has a mature supply chain management system to control the quality of upstream suppliers.
This is the key to the key, once the quality of the supplier cannot be controlled, there is no way to ensure the quality of the product, which will lead to the loss of a large number of consumers, and affect the subsequent bargaining power, Costco's advantage will be lost.
Therefore, the relationship between suppliers and Costco is one of glory and humiliation.
However, domestic supermarkets do not have such a perfect supply chain system, so they not only cannot control the quality of suppliers, but also often charge suppliers display fees, bar code fees, etc., there is an antagonistic relationship between suppliers and supermarkets, and the price is difficult to fight.
In addition, the homogenization of goods in domestic supermarkets is serious, and there are not too many self-operated products with high quality and low prices.
There is not much difference between consumers going to this supermarket or that supermarket, but Costco's self-operated brand is like the "nirvana" of martial arts masters.
But if domestic supermarkets have their own brands, will they be able to attract domestic consumers?
Not necessarily.
In the final analysis, it is because of the frequent occurrence of domestic food safety problems and product quality problems, which really makes people lose most of their confidence, for fear that what they will buy is all "technology and hard work".
However, as a well-known international company with hundreds of stores around the world, Costco's scale and standards will first make many people feel reassured and trustworthy.
Costco is not only strict with the selection of suppliers, but also has a bottom line, if there is a problem with the supplier's product, then for three years, Costco will not cooperate with it.
But what if this happens in China? How many inferior goods are still on the display shelves of domestic supermarkets after the 3.15 party is exposed? I believe everyone has the answer in their hearts.
Costco's strict approach is exactly what middle-class consumers in China want, which allows them to spend money with peace of mind, even if they buy it with their eyes closed.
That's why some netizens said: "The purchasing power is not reduced, but the market lacks good products." ”
Costco's cleverness lies in its "honesty", but it is not easy for most supermarkets in China to do so.
Secondly, in the face of menacing e-commerce platforms, Costco can also do the same.
Due to the small number of SKUs, the inventory turnover rate of Costco is particularly high, and the circulation efficiency is also high, so the price of some goods can be cheaper than the price on the e-commerce platform.
For example, a Hitachi double-door refrigerator, the price of Costco can be nearly 7,000 yuan cheaper than JD.com, and because of the large packaging, the unit price of many daily necessities is also cheaper than JD.com.
Although Costco also needs to pay expenses such as store rent and wages compared to e-commerce platforms, they are also very good at compressing costs to the extreme.
The supermarket addresses they choose are generally in the suburbs, the rent is lower, and the combination of warehouses and stores can save storage costs and decoration costs.
In addition, the large packaging products they use do not need to be sorted, so the labor cost is much lower than that of ordinary supermarkets.
In today's era, e-commerce platforms are constantly squeezing the living space of physical stores, and how domestic supermarkets can survive may be worth learning from Costco.
However, even though Costco's stores are popular in China, it faces no less challenges.
There are still many consumers in China who are not suitable for the membership consumption model and are unwilling to pay for it.
In normal times, many consumers are reluctant to pay even dozens of yuan for video membership, let alone a few hundred yuan for Costco members, just looking at this price is enough to discourage many people.
Secondly, Costco is generally not built in a busy downtown area, many customers are not easily reached, and they usually have to drive, so the transportation cost is definitely much higher than going to the supermarket near home, and the time spent on the road is much more.
In addition, Costco's large packages are cost-effective, but for many Chinese households, they are a bit overwhelming.
Even for a family of three, it is very difficult to eat those large boxes of cakes and bread, so the consumption frequency of many families is not too high, and it is even more difficult for single or weight loss people to buy it.
Finally, the domestic retail industry is fiercely competitive, and Costco's competitors include not only domestic supermarkets and e-commerce platforms, but also fresh supermarkets and community group buying.
So far, Costco has only opened 6 stores in Chinese mainland, and all of them are in first- and second-tier cities, and consumers are mainly middle-class groups.
However, even if the domestic middle class has high spending power, their number is limited, and the average family will not open another if they open a membership, for example, customers who have already opened a Sam's Club card will not go to the market if there is no accident.
Therefore, for Costco, how to increase new users is a more noteworthy issue.
Coupled with the fact that one of its competitors, Sam's Club, has been rooted in China for many years and has amassed a lot of loyal users, if Costco does not step up and play the most dazzling trump card, then the remaining middle class may not have enough points.
At the same time, other supermarkets and membership stores also have unique advantages.
For example, Hema Club is the only club store that sells live fresh, which is more in line with the eating habits of Chinese, and it will also launch localized specialty foods, which are more popular with Chinese consumers.
On the other hand, most of the food sold by Costco is American-style, but Chinese consumers will be more discerning and picky about food taste, and if they want to retain them, it is not enough to rely on Costco's American roast chicken.
In addition, different supermarkets have different target groups.
Although Walmart's consumer base is not as high-end as Costco, because of its large scale and enough stores, Walmart's revenue in 2020 was $560 billion, while that of Costco was only $163 billion.
However, Costco can't expand at will, as not every city has enough middle class to afford one.
In addition, Sam's and Hema both do e-commerce delivery, which can provide consumers with more convenience, even if they don't have time to go to the store, they can still buy the products in the store.
However, it was not until March this year that Costco began to open its delivery business in Pudong, Shanghai, and then expanded to other stores, and it has to be said that this decision was indeed carried out a little late.
Throughout Costco's five years in Chinese mainland, every step it has taken has been very restrained, with small steps and slow pace.
As a large company, it is not a bad thing to be cautious in decision-making, but in the fiercely competitive Chinese market, if you can't keep up with the rhythm, you may be left behind by competitors at any time.
In the first quarter of 2024, the company's revenue increased by 6.2% to $57.8 billion, and net profit also increased by 16.5%, according to Costco's financial report.
At the same time, Costco also plans to open 33 new stores in China this year, while the Nanjing store will also open in the first half of the year.
Once the menacing market opener lands in a new market, it will inevitably bring certain impact and competitive pressure to local peers.
However, there is a concept in management called the "catfish effect", which refers to the fact that when a fisherman puts a catfish in a bucket full of sardines, the sardines will also become tense with the catfish's activities, so that they will remain alive all the time.
And Costco is the "catfish" that has been put into the domestic market.
In today's Internet era, consumers actually know very well which businesses have a conscience and bottom line, and which businesses produce and sell inferior products every day.
When product brand, price, quality and other information can be easily found and compared from the Internet, consumers will naturally choose the most suitable supermarket for themselves.
In addition to the cost-effective products, in fact, the most attractive thing about Costco is that consumers feel at ease with its products.
So, why would domestic consumers prefer to trust a foreign brand rather than a domestic one?
I believe that this is something worthy of deep thought by many domestic businesses.
-END-
Sources:
A glance at Longhua "The first in South China! Shenzhen Costco opens for business, the scene is super shocking......"
Lemon Food "Costco Opens Today, Failed to Visit the Store..."
Smart New Connection "Costco Shenzhen opens the world's largest number of cards, and a large number of domestic supermarkets have closed, what should we reflect on?"
DataVision "Why are Costco's refrigerators 7,000 yuan cheaper than JD.com?"
Hot micro comment "Costco Shenzhen is crowded with people, the number of cards opened is the first in the world, our supermarket should fight for breath"
Author: Mo Congling
Editor-in-charge: Willow Leaf chatter