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CostCo - Global Expansion Strategy
1. The Road to Global Domination
Raphael De Anda • Maria Gabriela Jouvin • Mayank Khamesra • Yasmina Rizk
2. STRATEGIC FINDINGS AND INSIGHT
No-Frills
Stores
Cost + Quality
based leadership
Customer
Centricity
Moat of
additional services
Exemplary
HR Practices
Strategic Issues :
Integration of
Technology
No clear
omnichannel
digital strategy
Inability to
showcase Kirkland
brand love
3. EXPANSION IN CURRENT AND NEW MARKETS
Current
Markets
New
Markets
• Oversaturation and cannibalization
of sales in Canada with a store per
400,000 people
• Population ratios defined for
expansion based on success in the
current market:
Current Market
Situation
Target Ratio
(population per store)
Home Ground
(US, Canada) 500,000
Very Successful
(UK, Taiwan) 2,000,000
Moderately Successful
(Mexico) 3,000,000
Faintly Successful
(Japan, South Korea) 4,000,000
• Expansion follows a trend: Costco
looks for price conscious
consumers, especially after
economic downturns in the
targeted markets
• Our analysis infers that there is no
clear entry strategy when a
market is targeted
• Our methodology defines two
decision matrices (based on
certain defining factors) :
1. Market Selection matrix
2. Entry Dynamics matrix
4. METHODOLOGY – MARKET SELECTION
Car
Penetration
Retail
Maturity
Enforces the warehouse
business model
Eliminates Shipping Costs
Ensure low operating margins
Larger network of suppliers
and manufacturers
Enables the entire
moat of services
Unsold products from established
brands can be sold at heavy discounts
6. METHODOLOGY – ENTRY DYNAMICS
Socio-economic
Proximity to North America
Regulations,
Government Protectionism
and Intervention
Likeness for American things,
coupon culture
High disposable income, no sunk
cost effect of memberships
“Costcoholic” behavior -
cost+quality created addiction
Trade Regulations
Government Intervention to
protect local retailers
Regulations concerning
Foreign Direct Investment
7. Sell online and
on ecommerce
platforms to
build brand
Joint Ventures,
Online Store to
build brand
Pilot Stores,
Focus on SMEs
Wholly Owned
Subsidiaries
Regulations - Government Protectionism, Intervention
Socioeconomic proximity
to North America
LOWHIGH
LOWHIGH
ENTRY DYNAMICS MATRIX
8. FRANCE
Key Observations
Growing Retail Industry (6%
of worldwide retail share)1
80% car ownership, 3.9
million people with 3 or
more cars2
High average disposable
income - USD 31,304 per
capita3
Large number of
American Tourists
Would Costco succeed in France?
“Oui”
Entry Dynamics
Wholly Owned
Subsidiaries
Location
Metropolitan areas with no
competing stores
High Competition
Population - 66.77 million4
9. GERMANY
Key Observations
Largest retail industry in
Europe (10% of global retail1)
High car penetration – a
nation that’s proud of its
cars
High disposable income
Highly price conscious
customers
Would Costco succeed in Germany?
“Ja”
Entry Dynamics
Wholly Owned
Subsidiaries
Location
Metropolitan areas with no
competing stores
High Competition
Population – 82.79 million2
10. ICELAND
Key Observations
Price Conscious customers
due to economic downturn
Local retailers operate at
very high margins
Very high car penetration,
824 cars per 1000 people1
Large number of
American Tourists
Would Costco succeed in Iceland?
“Já”
Entry Dynamics
Wholly Owned
Warehouse
(Only 1 store because of
low population)
Location
Densely Populated
Metropolitan Area
(Reykjavík)
Low Competition
Population - 340 thousand2
11. INDIA
Key Observations
High population density in
metropolitan areas
Low car penetration, but
not in metropolitan areas
No mature retail market,
highly dependent on
SMEs, street vendors
Uncertainty about
regulations, government
policies and FDI
Would Costco succeed in India?
“शायद”
(Maybe)
Entry Dynamics
Pilot Stores,
preferably Joint
Venture pilots
Location
Densely Populated
Metropolitan Areas
(Mumbai, Delhi, Chennai)
Moderate Competition
(Walmart has been unsuccessful)
Population – LOTS of people!
12. CHINA
Key Observations
High population density in
metropolitan areas
Low car penetration, but
not in metropolitan areas
Major cultural differences
in retail : few coupon and
membership models
Uncertainty about
regulations, government
policies and FDI
Would Costco succeed in China?
“也许 ”
(Maybe)
Entry Dynamics
Pilot Stores,
preferably Joint
Venture pilots
Location
Densely Populated
Metropolitan Areas
(Shanghai, Beijing, Shenzhen)
High Competition
Population – EVEN MORE people!
14. FIVE YEAR IMPLEMENTATION PLAN
A total of 122 new stores* can be opened from 2017-2022
* Based on Costco’s cash flow statements from the past 5 years (2013-2017) – Appendix 1 and 2
Country 2018 2019 2020 2021 2022
US 50 stores
UK 6 stores
Taiwan 1 store
Mexico 7 stores
Japan 7 stores
South Korea 1 store
France 18 stores
Germany 20 stores
Iceland 1 store
India 3 stores
China 3 stores
Columbia 2 stores
Peru 2 stores
UAE 1 store
15. DIGITAL TRANSFORMATION
New RFID+QR Membership
Cards
No need for a physical membership card
Tailored Offerings
Purchase History
Reviews:
Show your love for Costco
New Smartphone Application
16. THE TEAM
Marketing
“Did someone say Tequila?”
Operations Management
“Costco is awesome!”
Technology
“What’s a Costco?”
Strategy
“I love treasure hunts.”
RAPHAEL DE ANDA MARIA GABRIELA JOUVIN MAYANK KHAMESRA YASMINA RIZK
17. (in millions) Actual Projected
2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
PPE Investment $2,083 $1,993 $2,393 $2,649 $2,502 $2,633 $2,770 $2,915 $3,067 $3,228
Number of stores opened 26 29 23 29 26 25 25 24 24 23
Proxy Cost per Store $80 $69 $104 $91 $96 $104 $111 $120 $129 $139
PPE increase -0.04 0.20 0.11 -0.06
Cost per store increase -0.14 0.51 -0.12 0.05
5 year average PPE investment increase 5.22%
5 year avg cost per store increase 7.58%
# of New stores from 2018-2022 122
APPENDIX 1: NUMBER OF STORES CALCULATIONS
18. APPENDIX 2: NEW STORES ACCORDING TO POPULATION RATIOS
Target Market
Number of
Stores(2017)
Population in
2017 (mil)
New stores
(2018-22)
Projected Ratio of
population per store (2022)
Home Ground
US 488 325.7 50 0.61
Canada 90 36.54 0 0.41
Very Successful
UK 27 66.04 6 2.00
Taiwan 11 23.57 1 1.96
Moderately Successful Mexico 36 129.2 7 3.00
Faintly Successful
Japan 24 126.8 7 4.09
South Korea 12 51.47 1 3.96
Market Failures
Australia 8 24.6 0 3.08
Spain 2 46.57 0 23.29
New Sure-shot Market
France 0 66.77 18 3.97
Germany 0 82.79 20 4.14
Iceland 0 0.34 1 0.34
Pilots
India 0 1339 3 446.33
China 0 1386 3 462.00
Columbia 0 49.07 2 24.54
Peru 0 32.17 2 16.09
UAE 0 9.4 1 9.40
Total Stores 122
Current Market
Target Ratio
(mil people per
store)
Home Ground (US, Canada) 0.5
Very Successful 2
Moderately Successful 3
Faintly Successful 4
New Sure-shot Market 4
Market Failures -
Pilots -
Editor's Notes
1 Deloitte Global Powers of Retailing - https://www2.deloitte.com/global/en/pages/consumer-business/articles/global-powers-of-retailing.html
2 Dynamic of car ownership and commuting in France since the 1960s - https://hal.archives-ouvertes.fr/hal-00615148/document
3 OECD Better Life Index http://www.oecdbetterlifeindex.org/countries/france/
4 Google Population Trends
1 Deloitte Global Powers of Retailing - https://www2.deloitte.com/global/en/pages/consumer-business/articles/global-powers-of-retailing.html
2 Google Population Trends
1 https://en.wikipedia.org/wiki/List_of_countries_by_vehicles_per_capita
2 Google Population Trends