July 19, 2018

Joyeux anniversaire Costco France!

Gary Swindells, President Costco France (photo: Costco)
Gary Swindells, President Costco France, at the US company's first warehouse club in Villebonne-sur-Yvette
Asterix and Obelix would doubtless shop there. At the end of June, Costco celebrated its first birthday at Villebon-sur-Yvette, a small town 25km south of Paris. This is just one of 750 wholesale clubs in the US, Canada, Mexico, Japan, Korea, Taiwan, Australia, the UK and Spain. Given that outlets average 13,200m², it is a little surprising that Costco has also found the space to open in Iceland.

The concept, which enabled the Issaquah/Washington-based giant to post a whopping $126bn in revenues last year, is as successful as it is unusual. The nearest European equivalent would be a Cash & Carry store, but one where end consumers can also shop if they pay an annual membership fee.

Any European store expecting customers to pay for the privilege of spending their hard-earned money in a big hangar wouldn't survive a week in business. But Costco clubs, with a standard assortment of only around 3,300 lines, offer attractive quality brands at very competitive prices. A rapidly changing treasure trove of 500 exceptional products, ranging from motor scooters and boats to pianos, also creates an Aladdin's cave effect. This makes Costco one of the few really fun concepts in modern mass retailing.

But can Costco recreate its global success in Continental Europe and will it come to Germany? Who better to ask than Gary Swindells (54), the Canadian manager who runs the show for Costco in France, on the first anniversary of operations there...

"All customers are fascinated
by something new"

Gary Swindells, President Costco France (photo: Costco)
Gary Swindells, President Costco France
Mr Swindells, French food is probably the best in the world. Why should French consumers buy American food?

French consumers are no different from anyone else; they are fascinated by something new. We didn't want to come to France and copy the local competition, so we kept to our US concept.

Our success has vindicated this approach. If you take our bakery department, for instance, our biggest-selling products are American muffins and American cookies. French consumers also love our Canadian maple syrup.

This is not because they don't have a wonderful food culture of their own, but because they see such products as a novelty.

But not everything new is better. French customers are not familiar with warehouse clubs or annual membership fees. Why should they take their car and pay €36, plus VAT, for the privilege of spending their money?

I am convinced that success does not depend on whether a customer has to drive or pay a fee. People are willing to do both if you give them a reason for doing so. And our reason is the consistently high quality of the products we offer at unbeatable prices. Otherwise we wouldn’t have already gained around 74,000 members.

Have all your customers paid the full membership fee, or did you give them a rebate to kick-start the operation?

No, we didn't offer them any rebate, but we did give them a coupon that could only be spent in the store. This ensured that all sales would remain with us. In fact we are delighted with our success: Our average basket size is already €130 on weekdays and €160 at weekends.

But your membership fee is still considerably lower than in the US…

French advertising for new club warehouse members (source: Costco)
French advertising for new club warehouse members
It is true that our membership fees range from around $60 to $140 in the States, but we provide a lot more services there, including pharmacies, photo finishing, car washes etc. So there is a lot of added value that we intend to add in France and which we will be able to charge for.

How can you offer competitive prices when you have no local economies of scale in France?

We are very lucky in that we receive tremendous support from our international buying office in Issaquah where we are based. We also have a French buying office at Villebon-sur-Yvette whose job it is to source locally. We now have around 800 suppliers, nearly 400 of whom are local.

We also nurture strong long-term relationships with our suppliers because our concept relies on consistently high quality product.

What is the balance between food and non-food in your French assortment, and how does this differ from the US?

We currently sell 70 per cent food and 30 per cent non-food. In the US and most of the ten other countries where we operate, this changes to around fifty-fifty in three to five years, and I very much doubt whether France will be any different.

In the US your 'Kirkland' own label makes up around 26 per cent of group revenues. But no French customer has ever heard the name…

Obviously French customers will need to familiarise themselves with the brand, but acceptance is growing even as we speak. I am delighted to say that Kirkland has already achieved US-type penetration levels in France.

In October 2017 Costco announced that it was developing a food online delivery service with Instacart in the US. You and your start-up partner Gégé offer an online service to private customers in the Paris region, but why only in non-food?

Food is much more difficult to handle logistically. Some of our items, like beds for instance, are very bulky, so we figured that some customers would prefer to have these delivered to their homes.

In each country we make different online experiments. For instance, we have rental car parks for our customers in the UK.

But overall online is still a very small part of our business accounting for only 2 or 3 per cent of annual sales.

What are your expansion plans in France?

Costco's first store in France (photo: Costco)
Costco's first store in France (exterior)
We intend to open ten to 15 stores near big French cities over the next ten years, and our next outlet will open in around 2020.

That's only one new outlet in three years. How can you achieve up to 15 stores by 2028 at that rate?

In any new country we thoroughly test and adapt our concept first before moving forward. When we feel that it has gained acceptance, we can easily accelerate our expansion, as we’re more than capable of opening more than one store simultaneously.

To what extent is local bureaucracy slowing you down?

I wouldn't call the French authorisation process bureaucratic, but it is certainly lengthy. This is because any new site has to be authorised at numerous levels from the locality and department level right up to the conseil d’état (supreme court). Each individual decision can then be appealed. You also need proper political support.

Presumably this is because there is less space in France than in North America?

True, but, if you take my home country, Canada, for instance, there is a more laissez-faire attitude, and government doesn't get so involved with business decision-making processes.

Doubtless building and development costs are also substantially higher in France?

Yes, I would say that they are roughly around 15 to 20 per cent higher than in North America.

Costco is a global force and growing its presence in Europe. It is now in the UK, Spain and France. When will you come to Germany?

I am often asked why we choose to go to one country rather than another. The answer can be put in one word: opportunity. We've long ago given out the message that we are open to offers from any company anywhere.

If you were approached, what sort of things would you look at?

Costco's first store in France (photo: Cavok)
Costco's first store in France (interior)
There are many different criteria we would look at. We would first look at such things as the shape of the stores because our model is very square; we would check whether the ceilings were right, or whether the floor could take the weight etc.

So would you consider buying, for instance, Metro Cash & Carry or its hypermarket sister company 'real,-'?

They are not on our agenda.

Metro Cash & Carry stores are big because they carry 40,000-odd SKUs. But your standard assortment only numbers around 3,300 products with a further 500 extraordinary items. So why does your concept require such big hangars?

We need the space to work our model. We pile up big amounts of fast-selling products during the night so that we don’t have to replenish stock during the day and disturb our customers while doing so.

To what extent do you see Metro Cash & Carry as a rival?

We don't really appeal to the same customers. I used to run a restaurant of my own and know that when you buy for your business you want to find everything on one site. So we can't supply Metro customers with anything like the same range, but, if they have the time to also come to us, they will find some great bargains.

Lebensmittel Zeitung with digital sister (photo: LZ)
photo: LZ
Our German retail B2B newspaper, Lebensmittel Zeitung, in print & digital
Read in German: 'Costco beschleunigt Expansion in Frankreich' (paywall) and 'Wir sind offen für Verkaufsofferten" by international editor Mike Dawson on page 8 of Lebensmittel Zeitung, no. 29, 11.07.2018

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