Shareholder meeting shows Costco bounty
Costco Wholesale, the second-largest global retailer after Wal-Mart, remains a land of great bounty — but being big has its challenges.
Seattle Times business reporter
Costco Wholesale, the second- largest global retailer after Wal-Mart, is more than ever a land of nearly incomparable bounty: last year it sold 120 million hot dogs, 76 million $4.99 chickens and $5.5 billion worth of produce sourced from 44 different countries.
But there are challenges that come with that status. “It’s a very difficult business to do this kind of volume,” CEO Craig Jelinek said in discussing produce in a room packed with investors at the company’s annual shareholder meeting Thursday. “It’s a major undertaking for our company, but it’s paid big dividends for us.”
Costco’s worldly cornucopia was highlighted at the Bellevue gathering, where hundreds of stockholders lined up for freebies — from maple-leaf-shaped bottles of Canadian maple syrup to Spanish extra virgin olive oil, Kirkland Signature roasted seaweed and an instant coffee popular in Taiwan.
There was also a mammoth-sized Toblerone chocolate bar and vats of vegemite, a spread popular in Australia.
The display highlighted Costco’s growing international presence. Over the next few years, the company hopes to open half of its new stores overseas.
It recently entered new markets, including in Seville, Spain, last year, its first in continental Europe. Two more will open in Madrid in 2016, Jelinek said.
Bartley Felder, a retired flight attendant and longtime Costco fan, says that during her career she enjoyed shopping in Europe and Asia, so hearing Costco talk about setting up shop in other countries makes her happy. “I’m just so excited,” she said.
Costco also aims to keep growing in the U.S. Co-founder and Chairman Jeff Brotman said there may be 400 or 500 more warehouses in the U.S. over the next couple of decades.
But keeping up with consumer wants can be a challenge when operating at such a huge scale. Take organic products, which are increasingly in demand in the U.S.; items such as ground organic beef and organic eggs have been a success, but it’s difficult to get “enough to take care of our needs,” Jelinek said.
Costco also faces a generational challenge: Younger people, who tend to live in apartments in cities and drive smaller cars or not drive at all, buy less than Costco’s strong baby-boomer base.
Jelinek said about a third of new Costco members are millennials and generation X-ers, but “they don’t spend at the same level that the boomers do.”
Many new customers have been lured by Costco’s booming gas business, which grows at the tune of 15 percent per year in an industry where growth is in the low single digits.
Last year the company sold $11.5 billion worth of gas. “We’re clearly getting market share,” Jelinek said, adding that gasoline “is becoming a big, big business for us.”
Travel is also taking off: In 2014 the company’s travel unit raked in $387 million in revenues, a 37 percent jump.
But not all of Costco’s businesses are huge. Take its fledgling carwash venture. It has only nine locations vs. 445 locations for gas, although the company is getting ready to open up one more. “This is a very tough business unless you’re in a very warm-weather climate,” Jelinek said.
Ed Cole, a retired phone-company manager, said he has been a Costco shareholder since 1983 and he considers it a “marvelous company” because of its healthy shareholder returns and the way it treats its workers.
“I’ve never seen a frowning employee,” he said.