Recommendations for Costco’s Entry Into New Zealand

Introduction

The retail giant Costco is making plans to enter the New Zealand retail market. Costco is a billion-dollar multinational corporation that operates in eight countries (Costco, 2022). They have hundreds of retail stores around the globe where they offer their consumers quality products at affordable prices. They provide a wide variety of merchandise in their stores as well as specialty departments that provide their consumers with an excellent shopping experience. New Zealand has a large retail market that is continuously expanding. The retail market is currently dominated by retail chains such as Countdown, Woolworth New Zealand, The Warehouse Group, Farmers, and Kmart (Glassdoor, 2022). As Costco plans to enter the New Zealand retail market, it will face fierce competition from these retail chains. The retail market has a variety of opportunities that Costco can take advantage of and threats they may have to overcome to establish themselves in the country successfully. This report utilizes a situational analysis of the New Zealand retail sector to propose various recommendations that Costco can take under advisement as they penetrate the retail market and the competitive implications of their entry into New Zealand.

Recommendations

1. Establish an Online Shopping Store

With the advent of the Covid-19 pandemic, online shopping in New Zealand has grown drastically. More and more retail shoppers in the country prefer to do their shopping online as opposed to going to brick and motor stores. According to Jin & Hurd (2018), New Zealand is currently ranked as the 46^th biggest eCommerce market in the world as the eCommerce market recorded a revenue of $4 billion in 2021. This was an increase of 15 percent from 2020. As Costco tries to penetrate the New Zealand retail market, establishing an online store would help the retail giant gain a consumer base in the country. Medvedeva et al. (2021) point out that To establish an online store, Costco needs to set up a website where they are going to display their products. The customers can use their mobile devices and computers to access the website and make orders online. The web page needs to be easily navigable and have an excellent user interface so as to ensure the customer gets the best user experience.

The retail store then needs to set up an order fulfillment process which would involve effectively storing their products, packaging the consumer orders and shipping them to the homes of the consumer. To do this efficiently, Costco needs to establish an effective inventory management system that ensures that the consumer the products are stored efficiently in warehouses so as to meet demand (Badrinarayanan et al., 2014) effectively. This would help Costco track its inventory effectively and minimize the risk of stockouts by ensuring efficient record keeping. The store needs to set up warehouses all over the country so as to ensure that orders are fulfilled in a timely manner and that perishable goods do not expire in transportation. They also need to establish an effective shipping network that will be able to reach most parts of the country. Lastly, they can establish an online payment system to ensure the online transactions run smoothly.

2. Reduce Supply Costs

The New Zealand retail sector has been experiencing issues in the supply chain as supply costs increase steadily. This has forced retailers to increase the prices of their products. More than half of all retail stores in the country increased their prices over the last quarter of 2021. This increase in supply costs can be attributed to the rise in the inflation rate that was witnessed as a result of the Covid-19 pandemic. This has caused distractions among consumers all through the country. To combat this, Costco needs to take measures that will help them reduce supply costs. Pettersson & Segerstedt (2013) point out that the first step would be to return to the drawing board and establish an effective supply chain strategy. The retailer needs to evaluate its current supply chain and recognize any areas they need to amend and improve to save costs. Costco also needs to establish effective sales and operation planning so as to ensure that the supply chain works with maximum efficiency.

Costco also needs to design an efficient supply chain network that reduces costs and improves the reliability of product handling. To do this, Costco needs to incorporate relevant digital processes and conduct an analysis of the current model (Jaipuria & Mahapatra, 2014). This can be costly and time-consuming, so that the retailer can outsource the work to a 3PL partner. Additionally, Costco can look up ways to speed up the shipping process from the supplier, which would enable them only to order items when needed. Seidman & Atun (2017) ascertain that ordering items in advance would incur costs in storage and increase the risk of damage and expiration of perishable goods. Having a fast shipping process would help the organization save upon storage costs, consequently reducing the supply chain costs. Costco can also outsource some supply chain management tasks such as warehousing and transportation. A cost-effective and skilled partner would help the retailer save supply chain costs.

3. Introduce Healthy Food Options

Consumers in New Zealand have a growing preference for healthy food products. Consumers realize that eating healthy improves their quality of life and a general sense of well-being. Wong et al. (2017) affirm that consumers are more intent on eating healthy foods so that they can reduce the risk of heart disease, stroke, and cancer and have healthy body weight. Food products’ quality and nutritional content are increasingly influencing retail customers’ attitudes and purchase behavior. As Costco enters the New Zealand retail market, they need to align itself with its consumer preference and offer a wide variety of healthy food. Gorton et al. (2019) point out that in New Zealand, many neighborhoods do not have access to traditional grocers or other sources of fresh and healthy food. As Costco establishes itself in New Zealand, it can take advantage of this opportunity and get ahead of its competition by developing strategies to create a healthy food retail environment.

First thing first, Costco needs to make infrastructure improvements to its stores so that they can have the capacity to store these foods. This includes adding display shelves and refrigeration for the produce. They also need to improve the exteriors of the store, such as maintaining a clean environment to gain consumer confidence and guarantee the freshness of their products (Andreyeva et al., 2011). The organization can also set up resources in its marketing budget to advocate the consumption of healthy foods. Jaskiewicz et al. (2013) mention that they can take in-store initiatives to push for the consumption of healthy foods, such as providing promotions and discounts on these products. They can also introduce point of purchase prompts that guide the consumer to healthier foods. In order for the store to offer fresh produce, they need to partner up with local suppliers and farmers so that they can get the produce straight from the farms. This partnership would ensure that the retailer provides the consumer with the freshest product. Getting the produce straight from the farm would also reduce the supply chain costs as the retailer does not have to deal with middlemen. Through these strategies, Costco can effectively fulfill the demand for healthy foods.

4. Digitalization

Costco needs to take advantage of the rapid advancements of technology happening in the world as they enter the New Zealand market so as to stay ahead of the competition. According to Yusel (2018), digitalization of the retailer’s business processes would improve how the organization serves its consumers. The retailer needs to create a plan to enact digital transformation effectively. Digitalization will help the organization reduce its expenses as the automation of various processes will result in saving both money and time. It will also improve the efficiency of its operations and the productivity of its human resources. Since the retailer will aim to establish a chain of retail stores all over New Zealand, having a digital business process will connect all these stores, making it easier for the parent company to manage them irrespective of the distance barrier (Westerman & Bonet, 2015). Additionally, it will be much easier to adapt to any changes in consumer preferences.

To effectively achieve its digitalization goals, Costco needs to start by transforming its business process. This includes how they handle data, conduct analytics, and improve their application programming interface (Ulas, 2019). They also need to transform their business model so that it can align with the digital transformation. They also need to redefine their mindset and processes for the transformation so as to ensure its long-term success. Zaoui & Souissi (2020) point out that they need to establish a digitalization strategy that is all-inclusive and flexible before starting the process to ensure that the process runs smoothly. Digitalization will give Costco a competitive advantage in the New Zealand retail market.

5. Engage in Corporate Social Responsibility

As a new entrant into the New Zealand market, Costco needs to find a way to differentiate itself from the competition and improve brand engagement. One of the best ways to do this is by engaging in corporate social responsibility. Establishing policies in social responsibility will enable the organization to attract customers and retain them (KsiezaK, 2016). Consumers in New Zealand are more likely to be loyal to organizations when they know that part of the organization’s profits would go back to helping their communities. According to Patrizia (2012), policies in Corporate social responsibility would also aid in improving employee engagement within its stores, which consequently improves their productivity.

Costco can take various measures to ensure they do their part in CSR. Costco can incorporate days whereby they request their employees to volunteer for various projects within their community. The retailer can also donate resources to support various environmental and social projects (Jin & Lee, 2019). They can donate money to various charities as well as offer aid in the form of foodstuff and other products to those economically challenged within the community. Costco also needs to promote ethical labor practices within its stores to ensure that its employees have a comfortable work environment (Siltaloppi, Rajala & Hietala, 2021). They also need to maintain environmental sustainability in the areas they establish their stores. They can reduce their carbon footprint and establish proper waste management practices.

Competitive Implications of Entering the New Zealand MarketPlace

1. Improve Consumer Bargaining Power

The entry of Costco into the New Zealand retail market will increase competition within the New Zealand retail industry, giving consumers a variety of options when they need to do shopping. This level of competition will directly impact the pricing of products offered by retailers. Chen (2006) points out that price is a major determinant when consumers make the decision on which store to go to, as they tend to shop at the store that offers the products at the most affordable price. Since stores tend to set their prices relative to those offered by their competitors, if Costco decides to lower its prices to attract consumers, other New Zealand retail market players are bound to do the same.

The competition also affects quality the same way it affects pricing. Consumers tend to be attracted to stores that offer the best quality products. This means that if Costco offers quality products to its consumers, other retail stores will follow suit (Sheu & Gao, 2014). The same goes for customer service. Retail stores will continually try to have the best customer service in order to attract and retain clients. With an increase in competition, the retail stores will try their best to do right by the consumers. This means that consumers will have the power to pin the retail stores against each other with increased competition, and they will benefit greatly.

2. Provide opportunities for Suppliers

Suppliers in New Zealand can benefit greatly from an increase in competition. With the increase in retailers, suppliers will have more buyers of their products. Manufacturers, producers and farmers will have an increased customer base as the demand for their products increases. Sheu & Gao (2014) affirm that this will give them the bargaining power and the ability to set prices as they take advantage of the increase in demand. If a supplier offers a quality product, the retailers will flock to them as they try to get the same or better quality than their competitors. The increase in demand will enable the suppliers to expand so that they can meet the demand. The suppliers will also be pushed to be more innovative so as to offer products of better quality (Fabri & Klapper, 2016). This will result in the growth of their manufacturing and supply businesses in the long run.

The growth of the manufacturing and production industry will also be beneficial to the economy of New Zealand as a whole. Haucap et al. (2013) point out that since the suppliers will have bargaining power and increased profits, they will be able to increase the income of their workers, which leads to more disposable income. They will also be able to offer employment so as to get the labor needed for expansion. The increase in profits for suppliers will also mean that they will contribute more to taxes which will help the government undertake projects in infrastructure that will benefit the suppliers in return. Farmers will also have enough money to undertake environmentally sustainable farming practices which benefit the environment.

Conclusion

Costco is a multinational corporation that oversees a chain of retail stores all over the world. They are planning to enter the New Zealand retail market, and in order to accomplish this, they need to take a few measures. As more consumers in New Zealand prefer to do their shopping online, Costco needs to establish an online store where their customers can shop and deliver their orders to their doorstep. They also need to take measures to help reduce supply costs as the costs in the New Zealand market are currently relatively high. Consumers in the country are also determined to eat healthily; therefore, Costco should make plans to introduce quality healthy foods in their stores. They can also invest in digital transformation as this will help the organization reduce costs and increase its productivity. The organization also needs to engage in corporate social responsibility to attract and retain customers and improve employee engagement. The entry of Costco into the New Zealand retail market will have some implications on the sector due to the increase in competition. Increased competition will enhance consumer bargaining power, resulting in better prices and improved quality of products. It will also provide opportunities for suppliers as their customer base will increase.

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