Costco enters Queensland

Warehouse giant promises new jobs — and increased competition.

a woman

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Based on the number of jobs the project will create, Queensland’s Newman Government has given the go-ahead for the 14,000-square-metre construction of the state’s first Costco (NASDAQ: COST) store in North Lakes – north of Brisbane – despite heavy third-party opposition.

After gaining approval from the local council last August to proceed with the project, Westfield Group (ASX: WDC) challenged property developer Stockland (ASX: SGP) and the council in court, claiming that the sheer size of the store contradicted local town plans and would affect further development of the area in the future.

Furthermore, Westfield argued that the introduction of the Costco would put other smaller shops, such as local IGA stores – a subsidiary of Metcash (ASX: MTS) – in jeopardy. Whilst these stores are already struggling against supermarket heavyweights Woolworths (ASX: WOW) and Wesfarmers (ASX: WES), allowing the warehouse behemoth into the market would likely lead to further diminished demand and increased pricing pressures.

On the contrary, Queensland’s Deputy Premier and Development Minister, Jeff Seeney, argued that whilst the primary reason behind his decision was to create over 500 jobs for the $35 million construction, the opening of Costco would also encourage market conditions and lower prices for consumers.

In yet another blow for small or independent stores, it is anticipated that the development will also include a petrol station – where discounted fuel will be offered to compete with existing offers by service stations affiliated with Coles and Woolworths, owned by Royal Dutch Shell (NYSE: RDS-A, RDS-B) and Caltex Australia (ASX: CTX).

The North Lakes development will be one of six Australian Costco stores, with new openings in Ringwood and Crossroads – in Victoria and New South Wales – to occur soon.

Foolish takeaway

Costco’s entry into Queensland is part of a “massive phase of expansion” – with plans already existing for “two or three more sites as a follow-on”. Should the membership warehouses chain realise as much success in Australia as it has overseas, industry market share could become even harder to come by for our local supermarkets.

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