Costco grows into major beef retailer

Many Canadians who still ask, “where’s the beef,” now have an answer. It’s at Costco.

The giant retail chain accounts for 16.2 percent of all Canadian sales of fresh beef, and last year generated $3.9 billion in meat sales, said Claude Gravel, assistant general manager for fresh meats with Costco Wholesale Canada.

Costco markets 56 percent of all AAA slaughter beef in Canada and is working with feedlots to increase the amount of AAA and prime beef available, he said during the March 10 Tiffin lecture at Lethbridge College.

He said only one percent of slaughter beef in Canada grades as prime, or AAA, and his goal is to increase that to four percent through pre-slaughter identification of superior cattle, new management and feeding protocols and a camera system of grading to eliminate subjective judgments.

“There will still be a grader but there will be no judgment call between high double (AA) and the low triple,” he said.

Gravel is averse to paying more for branded meat, preferring instead to help raise overall standards and improve Costco’s ability to buy higher end beef.

Costco has a program with Lakeside Feeders Inc. in Brooks, Alta., in which specific cattle are placed on feed from producers who have a record of delivering beef cattle that fit Costco’s grade requirements.

“Lakeside is a partner,” Gravel said.

“We’ve always been working well together. If they can suit my needs, that’s a winning situation for everybody.”

In Canada, Costco processes beef in the store where it will be sold rather than delivering it from a centralized plant. Hamburger is ground fresh daily, on site, and no beef can be sold that is older than 30 days.

Boneless pork has a 28-day expiry, and bone-in pork expires in 21 days. Roasts sit a maximum three days in the meat case and are then cut into steaks or ground.

The company has strict policies about grinder and slicer cleaning and food storage temperatures.

As well, it is implementing a full meat traceability program that will allow it to access information about the producer, packer, packing date, shipping dates and when the meat was offered for sale in stores.

The large volume of beef that Costco handles means the company doesn’t make up more than 25 percent of one supplier’s business. This protects suppliers should markets change and Costco decides to reduce or eliminate a product from its shelves.

Janet Shanks, vice-president of fresh foods for Costco Wholesale Canada, said shopping frequency at Costco continues to increase. Sales are already up 11 percent in the first quarter of 2011 compared to 2010. Net income is up 17.4 percent.

Bulk and volume are key drivers for the company.

Shanks said its store in south Calgary had nine days in 2010 in which it had more than $1 million in sales per day, which is down from $14 million days last year.

She attributed the reduction to dilution of traffic because of store openings in Okotoks, Alta., and Rockyview, Alta.

The stores may appear to have a wide selection, but Costco limits the number. It sells 4,000 products, compared to 125,000 in Walmart stores.

It also puts fresh products at the back of stores so customers have to walk past other merchandise.

“There’s a method to our madness. We want to entice you to go all through the warehouse,” said Shanks.

Costco works on high volume, operating efficiencies and cost containment at every level, she said. Net company profit comes entirely from memberships and renewals, she added.

FACTS ABOUT COSTCO:

583 locations worldwide and 80 locations in Canada

$139 million in average sales per store per year

Average 1.7 million transactions every day

33.3 million member households

61.2 million cardholders

88 percent membership renewal rate worldwide

2010 net income $1.3 billion

Largest wine retailer in North America

Sold 51 million chickens in 2010

Food courts sold 92 million hotdog and soda combos in 2010

151,000 employees worldwide; 21,000 in Canada

Average hourly employee wage $19.96

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