Why is Costco working in Japan?

It’s commonly said Japanese consumers only use small packs. So why are Costco warehouses growing so fast? It just opened its 32nd!

There are rules and sometimes there are exceptions. Costco Japan is one.

For most consumer products companies, the Japan marketing playbook contains blurb along the lines that the typical family lives in a 40-50m² apartment, the cupboards are small as is the refrigerator…therefore grocery shopping is a daily occurrence…

If you live or work within Tokyo’s Yamanote line, then this may be true.

However the country is more fragmented than many appreciate and there are lots of people living in suburbia. Property by International standards, is not that expensive. And there are many people driving big cars. Let’s not forget Japan is a key market for the German automotive industry. Not everyone rides the trains, magnificent though they might be. 

Many foreign grocery retailers have tried to enter and grow in Japan. They included Carrefour, Tesco and Walmart. None are here today. Ironically the one most pundits expected to flounder, Costco has soared.

Last week it opened its 32nd store in Japan. According to its CEO it aims for 60.

Costco Japan has stuck largely to its US-global playbook. The stores are branded wholesale or warehouse, the pack sizes are western, product is sold off pallets, there is little category management or in-store marketing and members pay a loyalty fee (JPY4,840).

Costco is also pushing online heavily in Japan

The irony is that Costco Japan’s shoppers are not traders or the lower income demographics. They are actually very wealthy. Almost everyone drives to Costco, the car parks are full of SUVs and wagons. The Costco stores are not located in city centres.

I think it’s also significant that Costco started organically in Japan. It has no JV partner; it did not acquire an existing business, unlike Walmart. It has been free to recruit its own team and set its own standards. 

Costco is now a top 10 retailer in Japan. It has high shopper traffic, high basket spend and high repeat rates. It has cleverly identified certain key items which shoppers swoop for. Who’d have thought that an American retailer would become a popular vendor of sushi or fresh fish? 

Not surprising given almost all its shoppers are drivers, petrol and car tyres are a key merchandise offering.

Many Japanese vendors were slow to trade with Costco. Costco like most western retailers likes direct trading. Why give margin to the middle man? Now more Japanese brands are trading direct which has key implications for other retailers here. 

Its 32nd store is in Kadoma, east Osaka. The store opened just towards the end of school holidays and it was so popular management decided to open the doors at 0500 instead of 1000. Whether that will last I don’t know but Costco Japan is strong and getting stronger by the day.

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