Costco to double expansion rate for stores in Canada
Opening of 7 outlets in 2017 ‘a threat’ for supermarkets, one analyst says
Costco is aggressively stepping up its expansion in Canada after years of strong success in this market, a move likely to put even more of a squeeze on traditional grocers such as Loblaw and Sobeys.
The U.S. warehouse club giant, which has annual sales of close to $21 billion and 91 stores across the country, will open seven new stores in fiscal 2017, the company revealed on its fourth-quarter conference call with analysts. That is about double its most robust annual expansion rate.
“I think the fact that we are opening so many right now has to do with very strong sales over the last few years,” said Richard Galanti, the retailer’s executive vice-president and chief financial officer, said Thursday.
“We have been enjoying five per cent to none per cent (same-store sales) in local currency in each of the last few years up there, and so it keeps getting stronger.”
Same-store sales are a key indicator of retail strength.
In Canada’s mature markets, there might sometimes be cannibalization to older outlets when Costco adds new stores, Galanti said, but “the business that’s added net of cannibalization, we’ll find that existing members will then be shopping more frequently, because they are closer.”
Costco, whose Canadian members pay a $55 annual membership fee to shop, said about 90 per cent of its members in the U.S. and Canada renew memberships annually.
Galanti gave no update on the growth ceiling for the company’s warehouses, though Canadian executives had earlier pegged the number at about 110.
Typically, Costco opens one to three warehouses a year in Canada, noted analyst Keith Howlett of Desjardins Securities, who said the latest news bodes ill for traditional grocery companies, in particular Empire Co., owner of the struggling Safeway brand in Western Canada and Sobeys in the East.
“Costco Canada has been an outstanding success and dominates the wholesale club segment,” Howlett wrote in a note Friday.
“The membership warehouse club format remains primarily a threat to conventional supermarkets rather than to the hard discount channel (such as No Frills). Empire, as the largest operator of conventional supermarkets in Canada, would appear to have the greatest exposure to Costco.”