Business and market analysis of Costco

Costco wholesale corporation, is carry a membership of warehouses and sell high quality and national brands to resale and individual who have a membership in low prices, their first operated was on 1983 in Seattle, Washington. Now they have more than 570 warehouse around the world and 22 in United Kingdom. Of course every supermarket has to face a competitive environment but each one have their own strategy to deal with it by looking to their SWOT analysis and PESTEL analysis, also they should focus on their internal, micro & macro environments. In this essay I will evaluate how Costco deal with these things.

There is no companies can improve and get over if they do not focused on their internal strength and weakness and eternal opportunities and threats which is called SWOT analysis. Strength is looking to their internal capability of recourses and improves it to reach their objectives. According to Chatterjee “Costco Annual revenue climbed 9.1 percent to $77.95 billion from $71.42 billion”. In 2010 Costco were the 3th largest retailer in the USA and the 8th in the world. They offer a high quality of products with a big name, for example Sony, Microsoft, nestle and Kelloggs and numbers of co-brands such as Starbucks and Disney instead of their own brand which is called “Kirkland” in a low prices. They have over 60 million of cardholders also they are Goodwill with excellent employees. There were some advantages for Costco to their own brand; they can control their prices, packaging and the quality. Weakness is limitation that may prevent company to achieve their objectives, Costco weakness that you can find store in certain area and you cannot buy from the store if you are not a member in Costco club. Opportunity is an external positive factor that may bring advantages to the company, in UK Costco aims to open 40 warehouses around the country this will be good opportunity to them because they can reach large numbers of new loyal customers. Also they offer a Varity numbers of goods holding their own brand name, Costco noticed that most of their customer buys Toilet paper with annual sales of 375 millions. “Every year to every two years, we try to upgrade the quality of this product,” Rose explained. “Make it softer, make it stronger, everything that we can do to just make it a better quality product and our members, you know, obviously the reward is with the sales on this item.” (DONVAN and HERMAN, 2008). Threats is an external negative situation can face the company and break their performance and they should minimize it, when Costco decide to open their store in the UK and get their approval to open their two stores and pay millions to develop their sits. The big three supermarkets Sainsbury, Tesco and Safeway tried to stop opening programs of Costco by “going to the High Court and then to the Appeal Court to contest the council’s decision.” (KILBURN, 1992), they argued that Costco is retailers not wholesalers and the customer should pay fees to be members in Costco, so they should treat as retailers treated in UK. They were worried because Costco had succeeded in 17 years in USA and they sell everything from grocery to computers and pharmacy, also they sell up to 50% cheaper than other outlets in USA.

Companies also will face an external environment that they cannot stop it or control it such as macroenvironment. There is also a microenvironment and both of them bring opportunities and threats to the company. Ecological/physical environmental forces is one of macroenvironment analysis is to protect the environment by producing products that not heart the natural. In Costco they produced their packaging from recycled polyester. The social forces give the company good image and predict the size and growth rates of marketing throughout charities and helping people go over in live by finding work and protect them from poverty. The plan of Costco to open 40 stores in UK which each store will employs 150 workers this will help to reduce unemployment also Costco and Highland Spring work together to support BBC children in need by selling a great pack for kid to keep them hydrated throughout the day, every 24 pack they sell 20p of it going to charity. Now technology become as lifeblood we cannot live without it, we can see the technology anywhere and everywhere, in the house, work, road…etc. Costco start using internet shopping from few years ago operated and updated by Microsoft windows sever system, their revenue through website was under $100 million within three years and now their revenue through website is $640 million.

“The microenvironment consists of the actors in the firm’s immediate environment or business system that affect its capabilities to operate effectively in its chosen markets.” (Jobber and Fahy, 2009) It’s include four key actors are customer which company should satisfy their needs and wants by understanding their behavior, 90 percent of Costco customer are loyal and renew their membership year after year also the thing that keep the customer loyal that Costco offer them high quality products and low price with return policy with full refund if they are not happy with what they buy, looking to the important of customer satisfaction. Competition is study of customer behavior not enough to success, company should know their competitors because they affect the company plans, and for example if they offering a lower price or making promotion, this may lead your customers turn to their side. The company should study and know their competitors strength, weakness, opportunities and threats. Costco biggest competitors in UK Tesco, Asda, Sainsbury, and Safeway. Costco deal with competitors by offering high quality products in bulk with a low price, good treat from customer service these lead to build their brand name in UK and get customer loyalty. Distributors are to offer the products in right price, place and time to meet customer needs and wants, distributor lead to reduce supplier profitability. Costco introduce 4000 unique products in each store from groceries to the televisions and computers. Costco buy direct from the manufactures that allows warehouses not delay in receiving the products and give the customers the opportunity to purchase as quickly as possible. Suppliers who provide supply and material to the company to produce goods and services, suppliers can bring problems to the companies if they have shortage or delay of producing on time because this will damage the customer satisfaction, usually companies treat their suppliers as a partner, if the supplies were powerful and increasing the cost of supply this will lead to push the price up. “Companies should monitor supply availability, such as shortages due to labour strikes or political factors, as these can cause customer dissatisfaction and lost sales.” (Jobber, 2010). “Costco and their suppliers gain maximum administrative efficiency, reduce shared expenses and improve system accountability.” (Peters, 2003).

Companies should focused on all of the four actors of microenvironment analysis because this will help them to explode their opportunities and reduce threats.

“Internal environment is performance and activities of a business to be assessed in the light of environmental developments.”(Jobber and Fahy, 2009). It based on finance and accounting which is depending on budget that helps the marketing to achieve its objectives. Costco financial records of the fourth quarters of 2010 was net Property and Equipment $11,314(MM’s).Research and development (R&D) looking for products that bring customers attention and develop safe design. Costco every one or two years developed their products specially products on demand. Purchasing, companies looking for suppliers and good materials. As we mention above that Costco offers 4000 high quality items in each stores with a low price, up to 50% lower than their competitors. Production is producing products with good quality and materials.

In conclusion, Costco became a worldwide wholesales in few years. They were focusing on their performance to reach their objectives, by improving their internal environment and strength, explode their opportunities and minimize threats by focusing on the macroenvironment and microenvironment.