Costco Connection - October 2006

ground. In the Asian countries, issues surrounding real estate have forced the company to grow up—into multistoried buildings—rather than grow out. Finding the right merchandise means building relationships with suppliers. Paul and Jim admit that relationships need to be nurtured as Costco proves itself by paying its bills on time and honoring commitments. “When suppliers are unfamiliar with Costco you have to engage them in a dialogue,” explains Paul. “You begin by asking how they work and what would make a partnership easier.” Other ways they found to gain suppliers’ trust include placing a big order, relying on word-of-mouth feedback from their peers and selling their products one item at a time. One factor in Costco’s favor is its work with global companies, such as Procter & Gamble, Kraft and Duracell. This not only gives Costco clout with new, local vendors, but also gives buyers the opportunity to place products from the U.S. into warehouses around the world. Depending on the country, 15 to 35 percent of the product mix sold in international warehouses are imported from the U.S., nearly $1 billion worth of merchandise. At the same time, buyers work to offer members local favorites such as Contrex water (which contains a mild laxative) in Japan, sea cucumbers in Taiwan and ice augers in Canada. Because Costco doesn’t advertise, bringing the concept of buying a membership to shop to a new country is similar to entering a new market in the U.S. It involves educating employees and members along with putting faith in word-of-mouth advertising. “It’s a big investment to go into a new country,” says Paul. “We have to ask if going into a new country is more important than going to Wyoming.” Jim says that before entering a new market the company looks at several variables, including political and economic stability, along with the population and its purchasing power. Any new country under consideration should be able to support 15 to 20 locations within the first 10 years. “While there aren’t any real secrets to success in international countries, we know we’re dependent on maintaining high standards. We also know the importance of being honest with and respectful of our employees, suppliers, members and their cultures,” says Jim. “Respect plays well in Kansas, and it plays well in Hisayama, Japan.”—Stephanie E. Ponder

French signs and unusual packaging, such as milk in a bag, are examples of what members find at some Canadian Costco locations.

own culture has been apparent for some time.

“I learned right away that if we were going to be successful in Canada, everything we did had to be Canadian in its roots,” says Scott Tyler, Costco’s first warehouse manager in Canada. “We wanted Costco to be perceived as a national company, not an American company.”

Though Canada’s total population of 33 million is just slightly less than the pop-

ulation of California, Canada’s ethnic

population, per capita, has twice as many Asians (Toronto has the largest, and Vancouver the sec-ond-largest, Chinese population of any city outside Asia) and more than three times as many native peoples as the U.S. There are large populations of Italians, Portuguese and ethnic groups from all around the Caribbean, as well as

South Asia, the Indian subcontinent and French-speaking countries.

This ethnic and language mix means merchandise at Costco has quite a different look. “Members will find items they won’t anywhere else,” says Louise Wendling, Costco Canada senior vice president. From tourtière, a traditional meat pie, and locally produced blueberry chocolate in the summer and Christmas crackers and ice augers in the winter to poutine (French fries topped with fresh cheese curds and covered with hot gravy) and milk in a bag year-round, the mix of items has a distinct Canadian flair.

Members also won’t see items they might find elsewhere. Beer, wine and liquor are sold at some Costco Canada locations, but not all. Many U.S. over-the-counter health items are prescription only at Costco’s Canadian pharmacies.

Additionally, “all the packaging has to be bilingual,” says Janet Shanks, vice president in charge of fresh foods for Costco. “And all packaging has to