Countless communities have been left waiting for a Costco, despite high local demand.
The warehouse club only opens about 20-30 locations worldwide each year, which means that many communities that want a Costco don’t get one.
A surprising number of Americans consider the warehouse club their top option for grocery shopping.
“A recent survey found that 15% of Americans ages 18 to 24 and 17% of Americans ages 25 to 34 do most of their grocery shopping at Costco. That share declines among older generations — 9% of those ages 35 to 44 do their grocery shopping at Costco, 3% of those ages 45 to 54 prefer Costco for groceries, and 6% of those 55 and older shop for groceries at Costco,” according to GOBankingRates.
The chain may not be in every community, but it’s expanding and adding warehouse locations.
Costco shares expansion plans
Costco rumors often fill up the local social media message boards in my community. We have a Sam’s Club, they’re building a BJ‘s, and Costco has a distribution center in our city, but there are no plans to open an actual Costco warehouse club.
The chain has certain demographics it requires to open a new location, but it continues to expand, so communities like mine do have hope.
“We tend to look 5 to 10 years out in terms of our real estate plans, and we would still see a really good road map for 30-plus warehouses a year is the goal that we have — at least achieving 30 new warehouses a year is the goal that we set for ourselves. And when we look at that 5- to 10-year plan, we see opportunities for growth in all the markets and geographies that we’re operating in today,” CFO Gary Millerchip shared during the chain’s first-quarter earnings call.
Only half of those locations, however, will be in the U.S.
“So generally speaking, we’re expecting around half, maybe slightly over half to be in the U.S. and then just around half just slightly under half to be in the rest of the markets that we operate in. So think of that being Canada, Mexico, Europe, Asia, Australia, across those different markets,” he added.
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How Costco picks new U.S. locations
Costco tends to expand in markets that are adjacent to existing warehouses. That makes sense from a supply chain point of view, and in many cases, new stores are built to take pressure off existing locations that have more or less maxed out their sales capacity.
Former CFO Ron Galanti talked about how the chain picks new locations during its first-quarter 2024 earnings call.
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“I don’t have the numbers in front of me, but I know, in fiscal ’23, we had something like 25 or so locations that did over 400 million, and another 160 or so that did 300 million to 400 million. Those are huge numbers. And certainly, as we get to 350-plus…when it starts having a three in front of it, certainly at $350 million, we want to start looking to see what we can do to cannibalize it, frankly, and to have more growth in that market,” he shared.
Once a Costco location hits $300 million in sales, it starts to max out its parking lot, which weakens that customer experience. Opening a new location in a neighboring community relieves some of that pressure while giving the newer store an existing member base to serve.
Costco uses “strategic cannibalization”
Kenneth Schuckman operates Schuckman Realty, a full-service commercial real estate services firm serving New York City, Long Island, and the surrounding tri-state area and New Jersey. He shared some insights on how Costco picks new locations.
“CEO Ron Vachris calls the approach strategic cannibalization. The idea is simple: build new warehouses near overburdened locations to redistribute customer volume and improve the shopping experience. These in-fill locations allow customers to spend less time battling for parking spaces or waiting in long lines, which in turn encourages more frequent visits and higher spending,” he shared on his website.
Costco has also added new resources to help it expand.
“To support this volume, the company has expanded its real estate team and adopted creative site acquisition methods. Recent projects highlight a shift toward refurbishing existing structures, such as converting a Hypermart in France into a Costco warehouse and former home improvement stores in Canada into business centers. This strategy broadens expansion options while reducing the capital investment required for new builds,” Zacks.com reported.
Costco currently operates 923 warehouses, including 633 in the United States and Puerto Rico, 114 in Canada, 42 in Mexico, 37 in Japan, 29 in the United Kingdom, 20 in Korea, 15 in Australia, 14 in Taiwan, seven in China, five in Spain, three in France, two in Sweden, and one each in Iceland, and New Zealand. Costco also operates e-commerce sites in the U.S., Canada, the U.K., Mexico, Korea, Taiwan, Japan, and Australia.
