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In the winter of 2009, a warehouse opened its doors in Docklands, Melbourne, and set about redefining how Australians think about value. Where the major supermarket chains offered familiar aisles of weekly staples, Costco offered something different. It presented mountains of bulk rice, pallets of toilet paper, enormous tubs of olive oil and shelves of Kirkland Signature goods that seemed almost an invitation to rethink the weekly shop. Few expected that, and 17 years on, this giant would not just survive but thrive.<\/p>\n
At the heart of Costco\u2019s Australian story is a startling statistic. In the year ending August 31 2025, its Australian arm reported a 39.4 per cent year-on-year profit increase, reaching $389.1 million (before corporate tax and dividends) on sales of roughly $10.8 billion. The result was strong enough to send a near $300 million dividend back to its US parent company, even as other retailers laid low amid cost-of-living pressures and aggressive pricing competition.<\/p>\n
Ahead of Aldi <\/strong><\/h3>\nThat performance now places Costco ahead of Aldi in Australia, long regarded as the third-largest supermarket by market share, despite Aldi operating hundreds of stores to Costco\u2019s 15 warehouses. The disparity is revealing. It\u2019s a testament not just to scale, but to a model that seems to make absolute sense to Australian shoppers in ways other supermarket behemoths have struggled to codify. Unlike Coles or Woolworths, which vie for everyday trips and loyalty programs, Costco invites a different currency that comprises membership, bulk and anticipation.<\/p>\n
It can help to envision Costco\u2019s business as less about supermarket shopping and more about retail psychology. Traditional supermarkets chase weekly visits and promotional cycles, whereas Costco encourages one big shop every few weeks, a contrasting rhythm. That cadence changes how people think about value. Buying in bulk becomes a ritual in anticipation, where a membership (currently between $65 and $130 a year) unlocks access to prices and quantities that feel, to many, impossible to replicate elsewhere. <\/p>\n
\u201cCustomers are loading themselves up,\u201d Retail Doctor Group analyst Dean Salakas told Inside Retail<\/em>. \u201cThey\u2019re effectively doing the work of the supply chain themselves.\u201d Salakas said the model is structured to generate profit well before customers reach the shelf. He also noted that historically, Costco\u2019s membership revenue has played an outsized role in underpinning profitability.<\/p>\nA successful value proposition\u00a0<\/strong><\/h3>\nFor many Australians, the trip to Costco is, naturally, economic but also experiential. Even with membership fees, the sheer scale of goods and the opportunity to stock up all at once reshapes the transaction from shopping into investment. If per-unit cost declines sharply when bought in bulk, the value proposition only strengthens over time. And in an era where affordability dominates as a consumer concern, that is a powerful pull.<\/p>\n
Crucially, Salakas argues the latest profit surge is not simply about demand, but timing. \u201cWhat they haven\u2019t had in the last 12 months is store growth,\u201d he said. \u201cWhen you stop growing, all your efficiency comes out.\u201d After years of network expansion and supply-chain investment, he suggests Costco may now be operating in a more mature phase where efficiencies previously masked by growth costs are surfacing in earnings.<\/p>\n
This dynamic helps explain why Costco appears structurally insulated from the supermarket price wars consuming the broader sector. Costco isn\u2019t cheaper because it cuts harder but cheaper because it makes money somewhere else.<\/p>\n
Beyond price wars: changing how Australians shop<\/strong><\/h3>\nThat advantage is being felt far beyond its own aisles. In public submissions to the ACCC\u2019s supermarket inquiry, Woolworths recognised that grocery competition today comes from a broad set of rivals beyond the traditional duopoly, including discount and non-supermarket players such as ALDI, Amazon and Costco. Consumers willing to drive longer distances and buy less frequently but in higher volumes change the cadence of grocery shopping for everyone. It is one thing to compete on price per item; however, it is another to restructure how often and how people shop.<\/p>\n
Costco\u2019s success also raises larger questions about how the Australian supermarket sector is evolving. Critics of the major chains often point to promotional wars and price gouging as features of a hypercompetitive market. Recent government moves to strengthen pricing transparency and introduce penalties for unfair pricing practices are clearly aimed at reigning in that dynamic. Last month, Treasurer Jim Chalmers flagged a $30 million funding boost for the ACCC, warning supermarkets they could face $10 million penalties for each breach of the rules.<\/p>\n
Yet Costco, by virtue of its membership model, largely sidesteps the same regulatory scrutiny applied to Coles and Woolworths.<\/p>\n
Value, loyalty and a system under pressure<\/strong><\/h3>\nStill, the model isn\u2019t without its complexities. To thrive, Costco must rely on sustained membership renewals and continued customer engagement, not just once-off visits. Its Canadian and US operations suggest that loyalty in the warehouse format tends to be sticky, with high renewal rates and deep engagement. Australians, too, appear committed; anecdotal evidence from store openings often shows long queues and enthusiastic crowds, willing to travel across cities to access the warehouse experience.<\/p>\n
It is also recognisable that Costco has managed to anchor value perception in an era when price alone is no longer the only currency consumers consult. <\/p>\n
Salakas notes that perception plays a decisive role. \u201cWhether it\u2019s actually cheaper or not is almost irrelevant,\u201d he said. \u201cThe consumer perceives that buying in bulk means they\u2019re saving, and that perception drives loyalty.\u201d Bulk purchasing, combined with membership exclusivity and a \u201ctreasure hunt\u201d atmosphere, reminiscent of Aldi\u2019s rotating middle aisles, turns shopping into both a rational and emotional exercise.<\/p>\n
In that sense, Costco is operating on a different scorecard altogether. As the supermarket landscape evolves, the question for other players will be whether they can recalibrate their own value propositions by redefining the terms on which consumers buy and think about grocery value. <\/p>\n
Costco\u2019s results suggest that when you change the logic of shopping itself, you can outpace giants, not by mimicry but by difference.<\/p>\n
The post Inside Costco\u2019s profit surge and the economics of buying differently appeared first on Inside Retail Australia.<\/p>\n
A successful value proposition\u00a0<\/strong><\/h3>\nFor many Australians, the trip to Costco is, naturally, economic but also experiential. Even with membership fees, the sheer scale of goods and the opportunity to stock up all at once reshapes the transaction from shopping into investment. If per-unit cost declines sharply when bought in bulk, the value proposition only strengthens over time. And in an era where affordability dominates as a consumer concern, that is a powerful pull.<\/p>\n
Crucially, Salakas argues the latest profit surge is not simply about demand, but timing. \u201cWhat they haven\u2019t had in the last 12 months is store growth,\u201d he said. \u201cWhen you stop growing, all your efficiency comes out.\u201d After years of network expansion and supply-chain investment, he suggests Costco may now be operating in a more mature phase where efficiencies previously masked by growth costs are surfacing in earnings.<\/p>\n
This dynamic helps explain why Costco appears structurally insulated from the supermarket price wars consuming the broader sector. Costco isn\u2019t cheaper because it cuts harder but cheaper because it makes money somewhere else.<\/p>\n
Beyond price wars: changing how Australians shop<\/strong><\/h3>\nThat advantage is being felt far beyond its own aisles. In public submissions to the ACCC\u2019s supermarket inquiry, Woolworths recognised that grocery competition today comes from a broad set of rivals beyond the traditional duopoly, including discount and non-supermarket players such as ALDI, Amazon and Costco. Consumers willing to drive longer distances and buy less frequently but in higher volumes change the cadence of grocery shopping for everyone. It is one thing to compete on price per item; however, it is another to restructure how often and how people shop.<\/p>\n
Costco\u2019s success also raises larger questions about how the Australian supermarket sector is evolving. Critics of the major chains often point to promotional wars and price gouging as features of a hypercompetitive market. Recent government moves to strengthen pricing transparency and introduce penalties for unfair pricing practices are clearly aimed at reigning in that dynamic. Last month, Treasurer Jim Chalmers flagged a $30 million funding boost for the ACCC, warning supermarkets they could face $10 million penalties for each breach of the rules.<\/p>\n
Yet Costco, by virtue of its membership model, largely sidesteps the same regulatory scrutiny applied to Coles and Woolworths.<\/p>\n
Value, loyalty and a system under pressure<\/strong><\/h3>\nStill, the model isn\u2019t without its complexities. To thrive, Costco must rely on sustained membership renewals and continued customer engagement, not just once-off visits. Its Canadian and US operations suggest that loyalty in the warehouse format tends to be sticky, with high renewal rates and deep engagement. Australians, too, appear committed; anecdotal evidence from store openings often shows long queues and enthusiastic crowds, willing to travel across cities to access the warehouse experience.<\/p>\n
It is also recognisable that Costco has managed to anchor value perception in an era when price alone is no longer the only currency consumers consult. <\/p>\n
Salakas notes that perception plays a decisive role. \u201cWhether it\u2019s actually cheaper or not is almost irrelevant,\u201d he said. \u201cThe consumer perceives that buying in bulk means they\u2019re saving, and that perception drives loyalty.\u201d Bulk purchasing, combined with membership exclusivity and a \u201ctreasure hunt\u201d atmosphere, reminiscent of Aldi\u2019s rotating middle aisles, turns shopping into both a rational and emotional exercise.<\/p>\n
In that sense, Costco is operating on a different scorecard altogether. As the supermarket landscape evolves, the question for other players will be whether they can recalibrate their own value propositions by redefining the terms on which consumers buy and think about grocery value. <\/p>\n
Costco\u2019s results suggest that when you change the logic of shopping itself, you can outpace giants, not by mimicry but by difference.<\/p>\n
The post Inside Costco\u2019s profit surge and the economics of buying differently appeared first on Inside Retail Australia.<\/p>\n
That advantage is being felt far beyond its own aisles. In public submissions to the ACCC\u2019s supermarket inquiry, Woolworths recognised that grocery competition today comes from a broad set of rivals beyond the traditional duopoly, including discount and non-supermarket players such as ALDI, Amazon and Costco. Consumers willing to drive longer distances and buy less frequently but in higher volumes change the cadence of grocery shopping for everyone. It is one thing to compete on price per item; however, it is another to restructure how often and how people shop.<\/p>\n
Costco\u2019s success also raises larger questions about how the Australian supermarket sector is evolving. Critics of the major chains often point to promotional wars and price gouging as features of a hypercompetitive market. Recent government moves to strengthen pricing transparency and introduce penalties for unfair pricing practices are clearly aimed at reigning in that dynamic. Last month, Treasurer Jim Chalmers flagged a $30 million funding boost for the ACCC, warning supermarkets they could face $10 million penalties for each breach of the rules.<\/p>\n
Yet Costco, by virtue of its membership model, largely sidesteps the same regulatory scrutiny applied to Coles and Woolworths.<\/p>\n