Costco to go big on US-style coupons, but do Australian shoppers prefer weekly specials?

Costco to open three new stores as Aussies opt to top up their shopping at the bulk retailer

American bulk retailer Costco is ramping up the number of discount coupons it sends to its Australian shoppers and one retail expert believes the international player is beginning to become fatigued by the ongoing grocery price wars.

The Australian reports Costco’s coupons, which are usually issued a few times a year, will begin to be sent to members each month in an effort by the retailer to entice more shoppers into its stores and capture a greater share of the local market.

The discounts offered in the coupons will reportedly be funded by Costco’s suppliers, with brands such as Bullas ice cream, Penfolds wines, and Huggies nappies featuring in this month’s coupon offerings.

Costco Australia chief executive Patrick Noone told The Australian the supplier-funded model is a good way for businesses to “drive their own business and drive their sales”.

Noone told The Australian the retail space in Australia has heated up over the past year, leading to Costco increasing a number of coupons it issued to customers. Referring to the price gap between Costco and other mainstream supermarkets, Noone said the international retailer would endeavour to keep the gap steady.

“We will still keep that price gap. There are ups and downs in the marketplace, of course, and Woolworths has been getting a little bit more aggressive, but the gap is still there and these coupons are on top of that gap,” Noone told The Australian.

“So we are still producing some really good savings (for shoppers). And these coupons have become very popular. People have really embraced them.”

However, retail expert and academic at QUT Business School Gary Mortimer questions how keen Australians are on coupons, claiming the practice is perceived as an American strategy.

“Couponing is very much a US-based strategy, with a background in food stamps from the Great Depression. Aussie retailers have followed the UK catalogue model, with a weekly special on offer for anyone who comes in store,” Mortimer told SmartCompany.

Along with Australian consumers “not getting” coupons, Mortimer thinks a coupon-based model for a “destination retailer” like Costco is unlikely to drive more people through its doors.

“Costco is not a retailer for frequency of purchase, it’s somewhere shoppers go every few weeks to buy $200-300 in bulk drygoods,” he says.

“Couponing is more about increasing the frequency of shops, so giving more Costco shoppers more coupons might not necessarily get more people in through the doors.”

“It’s a very US tactic, and it looks to me they’re trying to defend their market share in the face of a growing threat from Aldi and other retailers.”

The Australian reports Costco has pulled in close to $5 billion in sales since opening its first Australian store in 2009 and reported an annual revenue of $1.52 billion in the 52 weeks leading up to August 2016.

However, not only does Mortimer believe Costco’s coupon model will fail to grow the retailer’s customer base or market share, he thinks it’s unlikely to put a halt to the ongoing supermarket price wars.

“We’ll continue to see supermarkets like Coles and Woolies fight it out, and Aldi will continue to grow with its all-round low prices,” he says.

“The other thing for Costco to be concerned about is that they’re not only up against the aggressive supermarket division, but their consumer electronics and general merchandise arms are up against players like JB Hi-Fi and Kmart.”

“We’re really seeing the Aussie retail sector get highly competitive.”

SmartCompany contacted Costco but did not receive a response prior to publication.

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