As a new forum member, it took a moment to gather the courage to challenge @JuhaR, who is esteemed at the Master level – especially in this Tokmanni thread. But this time, I decided to do it, as I believe you are, unfortunately (and exceptionally), on the wrong track this time. I aim to challenge respectfully and with reasoned arguments.
Right from the start, I state that there is no certain information (=decision) yet about Costco’s expansion into Finland. So, it may not necessarily happen. However, it can be concluded from many sources that the question is more likely “when” than “will they come at all.” From the perspective of a small Tokmanni owner, my own risk analysis identifies 3 clearly distinct long-term value creation risks:
- China risk (for one reason or another, goods do not flow from China at current volumes and prices)
- Used goods trade (the fastest-growing sector in domestic trade, where Tokmanni is out of the loop. And even if it wanted to be in this category, Tokmanni has no clear strategic competitive advantages)
- Costco
And in my own PI matrix, Costco received the highest score last time. Therefore, the following comments are, in my opinion, quite dismissive. It even brought back good old vibes from 22 years ago: “the iPhone battery doesn’t even last a day, there’s nothing to worry about…”
Well, of course, this wouldn’t happen; there would probably be the same 1 store, as there are, for example, in Iceland and Sweden.
Unfortunately, things are a bit busy in the field right now, but below are brief reasons why this competitor, brought up by @Wildchild, should be recognized on this forum.
Store Network
Costco is coming to Europe. Juha’s mentioned current network only indicates that a strategic expansion has been decided upon in this continent – it says nothing about the scope of the strategy. For now, we can conclude that after the first tests in Europe, the concept has been found competitive, and expansion has actually accelerated. A few examples:
- UK: +15 new stores in the pipeline and a target of 45 stores (1.5M consumers/store)
- Sweden: according to the company, a potential for 5 stores (2M consumers/store)
Costco ser nöjda kunder som bästa marknadsföringen - Dagligvarunytt
Costco to Open a New Location in Sweden | Nordic Property News
My perspective: Assessing Costco’s potential based on its current store network is risky.
Localization
What distinguishes Walmart from Costco, Ikea, and Lidl? The latter 3 have successfully expanded by successfully localizing their assortment and concept. It can be concluded from Costco’s decisions that a strategic decision for Northern European localization has been made. Thus, the fact that two stores have already been decided for Sweden makes expansion into Finland significantly more likely. As you know, in retail, the first purchase is the “most valuable” and most expensive. It’s no accident that bananas are first in the Supermarket or protein bars are on offer at the XXL door. In retail terms, Finland might be the “Double-bar” on the checkout line at eye level. The assortment has already been modified for Northern Europe, EU compliance done, the Nordic consumer profiled (BTW, at the Nordic level, segments are practically identical), and logistics built up to the Stockholm ring road, etc… from there, thanks to government subsidies, extending logistics to Finland via the car deck of the ferry is a very simple BC – and at the same time, the volume advantage scales regionally across all procurement and logistics, improving profitability across all Nordic countries… (edit: government subsidy is about 200K€ per day between Sto-Hki/Sto-Tku for shipping companies. And without going into details, I can tell you that this sum does not fund a buffet or afternoon bingo, but practically free trailer transfer overnight from Sweden to Finland. Justified for security of supply, but at the same time makes maintaining central warehouses in Sweden cheaper in reality and BCs on the CFO’s desk rubber-stamp decisions).
My perspective: Localization for the Nordic countries has already begun. And the scaling of this “wholesale card” is on a different level than wholesale coffee.
Strategic competitive advantage in margin!
Inderes has admirably analyzed the margins of discount store competitors in Finland…
Upon its arrival in Finland, Costco would also force @Arttu_Heikura to work overtime updating the Y-axes of tracking tables. Costco’s biggest strategic competitive advantage can be seen in this table.
When a consumer gets a 48-pack of energy drinks 25% cheaper than a K-store owner from their central warehouse, many households will wonder, “what did I buy from that Costco trip…?”
Nowadays, large packages of various products are also more widely available in grocery stores, and for basic products, wholesale prices are not at all cheaper than hypermarket prices.
By the way, the turnover of the entire national Metro-tukku is 650 MEUR per year, which is about 7.5 times what it is for Finland’s largest individual Citymarket. So it’s no wonder its price competitiveness is weak.
As I stated in the previous message, more and more customers feel that there is a market for consumer wholesale. I see no reason why this would not also be the case in Finland. That is, in a country where even Lidl achieves the best results with small volumes. Generally, one could say that Finnish retail is still mainly operating at a “Nordic price competition level” – the current level is not enough for global competition.
”Membership fee income grew 8% to $4.6 billion, and our membership base grew to nearly 128 million cardholders, with a renewal rate of 90%.”
My perspective: Costco’s price competitiveness is anything but weak.
Potential in Finland?
Difficult to say the optimal number. But it is very likely higher than 1. With just 3 stores on Kehä 3, near Mylly in Raisio, and on the Tampere/Pirkkala bypass, 55% of Finland’s GDP could be captured. The Haparanda/Oulu location also has potential. And I could well believe that Costco would be precisely the store in Finland that people would drive longer distances to than any other store. If you study Costco’s strategy more closely, you will learn that they don’t even want you to shop monthly. The Customer Journey is designed so that, in an optimal situation, you only visit Costco a few times a year, as more visits only reduce the average purchase and increase relative costs. But if you visit (especially) on weekends for a Costco hot dog and at the same time observe the average purchase of 30 carts passing by, your jaw will drop. Dishwasher tablets, detergents, dry food, tools are bought for the whole year at once – and cheaply. Add to that Finland’s cheapest eyeglasses, branded cheapest car tires, and Finland’s cheapest diesel in the yard, and even a few stores could have an impact on Finnish retail…? [By the way, a station with about 40 pumps is being built next to Costco in Malmö, I think it was Sweden’s largest…]Finnish discount stores’ comp. growth figures have been relatively sluggish with a few exceptions. Sometime earlier, I wrote here in some thread about the difference between scalable sales, whether it comes from old stores or new stores - in terms of profitability, the difference is HUGE! Costco is one of the most well-known experts in store-level scalability in retail. Although the start in Sweden was modest and brand perception in the Nordics is still modest, the power of this table should not be underestimated - from the perspective of a consumer or a shareholder.
My perspective: Costco’s potential should not be assessed by “they only have 3-4 stores in Finland at best”.
As you noticed, the boarding was late, and I got to open up several perspectives. Costco should not be underestimated. And IF that were to happen, upon entering Finland, Tokmanni would be among the 3 retailers that this news would affect the most, in my opinion. Therefore, for the followers of this thread, I recommend ”#costo filter enabled” in European retail media and discussion forums.
Edit2: And as a final comment after a little soaring. @Arhi_Kivilahti recently analyzed how foreign chains have been strategic game-changers in the retail balance in Finland. https://www.kaupantila.fi/p/kotimaisen-erikoiskaupan-murskaava
Did you notice that change has not yet occurred in only a few categories. One of them was discount retail.
