Costco formula of fresh, fun and value creates loyal customer base

The store, located at 1 Cressy Road in Boolaroo on the reclaimed Pasminco industrial site, opened on September 21, 2021, right at the tail-end of the COVID pandemic. Now, two years later, it's absolutely thriving.

"For the most part coming to Costco is a bit of an adventure, it's a treasure hunt," says Costco managing director Patrick Noone.

"And that's the theatre and drama of coming here. You see the bakers baking, and the butchers cutting and presenting their wares, and you see the sandwich platters being made, that's the drama and theatre of coming to Costco and it's wonderful to see everything so fresh.

"If we took that away, it's a little boring doing things online."

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What's so special: The lamb packs fly out the door. With a unit price of $13.99 per kilo, the lamb pack includes "pretty much a half of lamb" says meat assistant Donald Moore. "The roast is the leg, it's cut in two pieces. Four quarter chops - that's the shoulder with the bone in, loin chops, and French cutlets. Pretty much all the major cuts of a half a lamb. You don't get half a brain or kidney. They fly out the door. Sometimes we do two pallets a day."

Costco is the world's fifth biggest retailer. The American-based public company has 858 stores worldwide, including 15 in Australia, where it launched in 2009 in Melbourne.

Costco has almost 125 million "members" worldwide - people who pay an annual fee ($60 in Australia) for the right to shop in its stores.

It is reputed to be the world's largest retailer of prime beef, organic foods and rotisserie chicken ($6.99 at Costco Lake Macquarie, by the way).

The company's formula may seem simple but its adherence to its principles have driven immense success, and its Australian stores are no exception. Best price, best value.

It's known for its inexpensive petrol at every one of its Australian locations. The petrol pumps are self service: swipe your Costco card and then swipe your EFTPOS card to a designated purchase amount. Costco petrol is consistently at least least 20 cents per litre cheaper than any competitor.

Inside the warehouses, the "treasure hunt" includes everything from a $2399 flatpack wood gazebo for your backyard, to a dozen Krispy Kreme donuts for $19.99.

Noone, who is the face and spokesperson for the company in Australia, was the first Costco employee in Australia in 2006.

"The first thing I used to do was drive around looking for empty land. I came with a Blackberry and a laptop, my tools of the trade," he says.

The Lake Macquarie Costco warehouse has been a resounding success. The store employs 250 staff and there are another 25 food sampling staff who are employed by CDS, a global partner of Costco.

"Newcastle is an interesting area, right?" Noone says. "It's a big small town. There's lot of smaller towns around it. So when we looked at the total market, there's half a million people who live up there. And although they are spread out a bit, it's reasonably easy to get from one side of the trading area to another, with the freeway up the Hunter Valley, and the north-south Highway 1.

"It just seemed to make a lot of sense, to put a warehouse there for that reason."

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What's so special: Party cakes, $34.99 fully decorated, serves 48. Fill out an order form at the in-store kiosk in the bakery section, or do it online. There are several designs to chose from, and you can choose your cake flavour, filling and icing. Order 48 hours in advance, pick up from the store. On the Friday of our visit, there were 48 cake orders completed and ready for pick-up and the cake decorators were making more.

Emma Taubman of Mayfield West is shopping at Costco on Friday morning, September 15, with her mum, Kim Kane, and Emma's son, Eric, who is turning five years old in a couple of days.

Eric is munching on a cookie from the Costco pack they've put in the trolley - it's his favourite reason for coming to Costco.

Emma says the family have been regular shoppers at the store since the day it opened. They had visited one of the Sydney store's prior to the Lake Macquarie store opened and they loved the value they got.

"We knew what we were in for when it came and we were very excited," she says. "My mum actually lives in granny flat behind us, so we normally she would go shopping with us, and split the food, and split all the products. We pay less and still get more things."

Between the two families, they have five freezers, so the bulk packs are good value for them.

"We've got lots of room to freeze our meat," she says. "We love getting the meat packs, the mince is our favourite thing because it's such good quality, good price."

They normally don't wander too far from their grocery shopping chores, but they do enjoy the food demonstrations (recently buying Manuka honey after sampling in-store).

They also bought an 85-inch TV from Costco - having done their homework, Emma estimated they saved $300 over the best deal to be found elsewhere.

And they've found a few new favourites: frozen mozzarella sticks and super-big bottles of juice.

They are also dedicated Costco petrol buyers.

The Costco formula is simple, but it's hard for consumers to describe.

"We're not be-all and end-all for shopping," Noone says. "We only carry 3000 items, but most other retailers carry 35,000 items.

"So we pick the best selling items in every category. We don't have everything you require but we have most of the good things you do want.

"We have a narrow focus on each category but we have a wide focus on categories, if that make sense.

"We'll sell five beers. If you go to a liquor store, you'll get 25 beers or more, as an example."

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What's so special: The bakery's current offerings include banana and walnut muffins, American-style cinnamon rolls, lamingtons, croissants, bagels and cookies. Also on offer now: American-style pumpkin pies, ahead of the US Thanksgiving holiday.

In-store sampling has not gone out of fashion at Costco. There are so many products from other markets, like Asia, Europe and the US, as well as smaller Australian firms, that getting consumers to sample the product is essential.

"We mainly use it to get people to try new things because, you know, we work with our vendors a lot, we work with a lot of small vendors that make great quality products," Noone says.

"Packaging doesn't always tell the whole story. But when you try it for a demo, and you taste it, and you say, 'holy crap, this is really good', and then you end up buying it.

"The best form of advertising is word of mouth. If your neighbour's got one and they give it to you, you know it's a great product and you'll go back and buy some."

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What's so special: The alcohol section is small, creative and has some great deals. They are sampling a mojito mix on this day. Other worthy items: Kirkland tequila margaritas in a bottle ready to drink, Liberation strawberry daiquiri in a keg from the UK, Maclay's Flavoured Vodka Jelly Shots ($29.99 for a pack of 25), Oktoberfest packs of German beer, Kirkland home brand Willamette Valley (Oregon) pinot noir wine for $37, and a 2016 Grant Burge Meshach shiraz for $99 (selling for $229 through online retailers).

The Costco experience is a leap of faith. Everything is huge - the parking lot fits 800 vehicles. Most of the goods are still on pallets. The pack sizes are huge. Some of the general merchandise is huge - like spas, TVs, rafts, outdoor Christmas decorations.

But it can win you over.

"The first time, you don't know what to expect, it's like 'I'll just take half an hour,'" says Teri Moore, the manager of Costco's Lake Macquarie warehouse. "Two hours later, they're saying, 'Wow, I didn't understand'."

Some things are a blur - you'll take note if the item is on your radar, like full-service optical and hearing appliance sales and service desks, tyres, TVs, coffins (yes, one of the quirks they are known for), insurance, jewellery, mobile phones, laptops, vacuum cleaners, home appliances.

But the 'can't miss' things include clothing - right in the middle of the store - bakery, deli, produce, meat, confectionery, frozen foods, soft drink, pet food, and packaged deli and cheese.

There are sampling stations with demonstrators in every food section.

"It's great to go into that massive box and having nothing but pallets of goods and you can try it and really get into what we're trying to offer," Noone says.

The company sticks to the formula, which involves constant rotation of product lines and introducing new items, which means a consumer most likely goes in looking for something different as well as chasing the good value deals they may have gotten on a previous visit.

The emphasis on fresh food is taken seriously. Even Noone, the boss, says that's the section he takes the most seriously in every Costco store he visits - and he visits two or three of the stores every week.

"We talk it from top to bottom, left to right, we take a look at the quality of the product, the facility and cleanliness, all of our logs, talk to each of our employees, each of our managers, we talk about the sales, what their top line's like," he says.

"We walk their product to make sure the quality is right, make sure the muffins have risen properly, make sure the meat has been cut properly, the sandwich platters are neat and uniform and full of good stuff. That's my favourite part of the business.

"That's really where my focus is, because if you have a bad experience in those areas, then it puts you off the rest of the business as well."

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What's so special: 14-in-a-pack fresh shucked Pacific oysters $22.99.

Costco Lake Macquarie warehouse manager Teri Moore says the attention to detail works.

"The take up of fresh food here [Lake Macquarie] is big, bigger than any store I've been in," she says. "People love it."

Fresh is taken seriously. For example, ground beef does not go back on the retail shelf for a second day.

In store, ground beef supplies are often restocked three or four times a day, even more on busy Saturdays, Noone says.

"We want to make sure that meat is produced fresh and put out for show right away," he says.

"It works because the lower the price of it, the better the value, the more sales. More sales means you can produce more often. It is a nice process to go through. That's why we are offering, I think we're 30 per cent value on that ground beef. And it's a big pack, but when you do buy it, you can be reassured it's pretty damned fresh, within a few hours."

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Costco Lake Macquarie bakery, deli and meat staff, merchandisers and fork-lift operators start work from 4am. It takes about five hours to replenish the store for the day's trading. The replenish continues through the day, and then for two to three hours after closing.

Food demonstrations are up and running within 30 minutes of the warehouse opening to the public.

Part of the price equation at Costco involves the fact that small business owners are welcome, too, and many lines are stocked for them, like cooking oils and meat (it can be sold by the palletload).

The prices are the same for businesses as they are for general members.

General clothing is stocked ahead of season, so small businesses have the opportunity to buy the goods for their stores. The merchandise is top-quality brand names (no seconds either). At the moment summer T-shirts, shorts and swimwear are in stock, from Nautica, Speedo, Champion, Fila and Ben Sherman.

At the end of your treasure hunt awaits the ultimate treat - a good deal on hot snack foods, like a hot dog and soft drink for $1.99, a big slice of pizza for $2.99, and an ice-cream sundae for $3.