Costco sees an increase in in-store traffic and membership renewals as shoppers realize the value of the mass and club channel

In its fourth quarter 2022 financial results report, Costco’s net sales for the quarter increased 15.2% to $70.76 billion from $61.44 billion in the fourth quarter of 2021. In the United States, sales increased 9.6% (excluding gas inflation) for the quarter compared to the same period. Last year.

Costco reported a 5.2% (7.2% worldwide) increase in shopper traffic for the quarter compared to the fourth quarter of 2021. Additionally, the average transaction size increased 10% in the quarter. in the United States (up 6% worldwide).

Speaking on the company’s fourth quarter 2022 earnings call, Costco chief financial officer Richard Galanti said consumers are increasingly recognizing the value mass and club stores can offer. in times of economic uncertainty.

“That’s the only thing I think we’re good at is figuring out how to get people in with hot items, and that’s helped us as well,”Galanti said.

The light at the end of the tunnel?

Costco Grocery sales were up 20% for the quarter compared to the same period last year, with the best performing categories being candy, frozen food and bakery and deli, Galanti noted.

While the latest consumer price index (CPI) for food at home rose 13.5% year on year in August 2022 compared to August 2021, Costco has managed to hold down the cost of its products somewhat mastered, according to Galanti.

“For the fourth quarter and talking to our traders, the estimated overall price inflation was around 8%”,he said, adding that the company is seeing prices for key commodities drop slightly, signaling “some beginnings of some light at the end of this tunnel.”

Signature Kirkland

So how do consumers shop at Costco? And is the retailer noticing compromise behavior from shoppers looking for the best possible deal?

Responding to questions from analysts about changes in shopping behavior, Galanti said: “A lot of you have been asking about private label with the recent inflationary environment and what’s going on, are people going down? And of course our first response, of course, is they they’re not going down. They’re certainly going up or market the same.”

For Costco’s leading private label offering, Kirkland Signature, which spans multiple categories from fresh and frozen food to floral and personal care, penetration is up 28% year-over-year and growing slowly and steadily .

In its broader food offering including fresh, frozen, bakery and other products, the retailer is in good shape in terms of inventory levels which struggled last year due to strong consumer demand combined with supply chain disruptions, Galanti said.

“Overall, despite current levels of inflation, we believe we continue to remain competitive with others and able to increase prices as costs rise, hopefully of course a slightly less than the others with which we are in competition”,he said.

“There are no specific plans regarding a fee increase at this time”

Costco, which requires a paid annual subscription to shop at its stores, saw its membership fee revenue rise 7.5% to $93 million. Excluding the impact of the forex market, earnings would have been +10% or $29.8 million higher, Galanti noted.

In terms of membership renewal rates, the company hit all-time highs in Q4 2022 with 92.6% of Costco members renewing their annual membership. Worldwide, renewal rates were 90.4% for the quarter.

At the end of the fourth quarter, Costco had 65.8 million paying household members and 118.9 million Costco Cardholders, an increase of 6.5% over the same quarter last year.

More paying members

Executive Members, the highest paying membership level, now represent more than 44% of members and just under 72% of our global sales, according to Galanti.

“Over the last few years we’ve continued to improve at convincing you to sign up – selling you the value of that executive member upfront. So we’ve seen increased penetration there as well,”he said.

Galanti also said the retailer is not considering raising the price of its three different membership offerings: Gold Star ($60 annual fee), Business Membership ($60) and Executive Membership ($120).

“In terms of membership fees and a possible increase, there are no specific plans regarding a fee increase at this time. We are pleased with our growth in both sales and membership households. over the past few quarters, and member loyalty is reflected in increased member renewal rates. We’ll let you know when something is about to happen,”Galanti said.

Another thing that won’t change is the retailer’s $1.50 price tag for its hot dog and soda combo in its store’s food courts, Galanti said.

“At the end of the day…I don’t think we’re necessarily looking to find places where we can harvest margin,”he shared.

“It’s all about volume. If we can gradually get another percentage point of comp sales, that’s more than any kind of crop we’d want to do, which we’re not doing.”

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