Costco's most recent quarterly update was highlighted by strong sales, membership, and earnings. What stood out was Costco's non-food categories growing the most and at a double-digit pace (for context, dollar, mass, and department stores are experiencing declines in general merchandise sales). Stronger non-food categories highlighted by Costco included jewelry, toys, home furnishings, tires, housewares, and gold. The gains reflect Costco’s more affluent membership mix and current consumer mindset to seek out lower prices. We show Costco’s more affluent captured trade area mix in the chart below (we've picked California as the trade area to isolate for geographic differences in retailer footprints to create more of an apples-to-apples comparison). Of note, Costco’s visitor mix of 22% for above $150K in household income understates the sales to this cohort. Our estimate based upon the BLS’ Consumer Expenditure Survey, is that this cohort is over one-third of sales.
Cross-shopping between brands has been a frequent conversation of ours as of late as food retailers refuse to stay in their own swim lane. How that looks for Costco California is shown in the chart below (and within the context that Costco California’s visitors have increased by +16%, which was partly due to the number of locations expanding from 123 to 134.) A few call-outs: (1) there is a substantial increase in dual memberships with Sam’s Club–again this is six or more visits to a Sam’s by an individual that visited Costco; (2) Local champions like Stater Bros and Superior Grocers, saw increases in cross-visitation trends; and (3) Target has made a lot of improvement in its offering as a place to more frequently shop (curbside, expanded grocer, etc.).
The cross-visitation gains by Aldi are off a small base; the gains by Trader Joe’s are not. Trader Joe's high frequency shoppers (6 or more+) have gone from 9.5% of Costco’s shoppers to 13.4%. Part of that increase is just more shoppers of Trader Joe’s (+9%) with some of those also Costco shoppers as well as higher shopper frequency of Trader Joe’s as shown in the table below. The latter is also true of Safeway (+15%). But with these high-frequency shoppers going from 15.0% to 20.7% of Costco’s shoppers, when overall shoppers to Safeway are down, that suggests a lot of encroachment by Costco on an important segment to Safeway and one of the reasons why Safeway’s basket size is down (particularly in the categories that Costco excels in).
If we just focus on the Los Angeles designated market area (DMA), Costco has 52 locations that do very high volumes. Average monthly visitors were up an impressive +6% year-over-year over the summer. Sam’s Club has fewer locations (10) in the market and was up similarly. Of note, Costco visitors visiting Sam’s Club by more than 2 times increased by 22%. Sam's Club visitors visiting Costco was flat year-over-year. Consequently, we believe that Sam’s continues to make market share gains in the club channel and bites out of Costco. Other chains doing well on a year-over-year basis in Los Angeles are Stater Bros and Albertsons. By contrast, Ralphs is losing ground.
