Join the Club and You Can Get It Wholesale (or, Just About)
They can get it for you wholesale. Or almost.
“They” are the dozens of warehouse shopping clubs that have opened in Southern California in the last three years. And all you have to do to buy merchandise at wholesale prices is join the club and be ready to wrestle 10-pound bags of sugar and 6-pound cans of fruit.
As part of a series on membership shopping, the Shopping column during the next two weeks explores warehouse clubs, their marketing strategies, their merchandise and their membership requirements. Today, the column examines cash-and-carry clubs that sell food and general merchandise. Next Friday, we will look at specialty clubs, such as the Home Club (home and building supplies) and the All American SportsClub (sporting equipment).
The warehouse club boom was born in San Diego when Price Co. opened the first Price Club in 1976. Since then, scores of warehouses have opened across the country, with many of them sprouting in Southern California, particularly since 1985.
Why are all these discount warehouses flocking to affluent Orange County and its environs?
“Because Southern California is an established and proven market,” said Glenn Johnson, a retail analyst with Piper, Jaffray & Hopwood, a regional investment banking firm in Minneapolis. “The Price Club has been very, very successful, with volumes over $100 million in some of those stores. So it made it a real attractive area to move into.”
And shoppers have found the prices attractive enough to pay $25 a year for the privilege of buying wholesale merchandise off industrial shelves in giant buildings that have all the charm of a parking garage. Shoppers scour the aisles of the cavernous warehouses, lifting 25-pound bags of sugar, lawn furniture, vacuum cleaners, books, cases of soda and laundry detergent into huge carts, and sometimes onto six-wheel dollies.
The warehouses--most of which are at least 100,000 square feet--sell groceries, hardware, auto supplies, a small amount of fresh produce, liquor and party supplies, large and small appliances, books, clothes, lawn and pool supplies and toiletries. To lug the stuff home, most of the warehouses offer free boxes.
The prices are low. For example, Post Raisin Bran is about $2.45 for a 25-ounce box at the warehouse clubs visited last week; Vons charges $2.59 for a 20-ounce box. Diet Coke is about $3.25 for a 12-pack of 12-ounce cans at the clubs; Vons charges $1.99 for a 6-pack. Most of the clubs charge about $12.50 for the Orange County-Los Angeles County Thomas Guides; they list for $21.95. Costco charges $49.99 for the Gerry Guardian children’s car seat; the seat costs $79.97 at Toys ‘R Us.
The key to the rock-bottom prices is high-volume sales. The clubs can sell at wholesale by quickly turning over mountains of merchandise. They also have low overhead and computerized inventory to help keep costs down.
But to get to the bargains you have to join the club. To qualify you must either own a business (or be the purchasing agent of a business) or be a member of a designated group, usually the following: current or retired government employees, members of local labor unions and credit unions, employees of hospitals, banks or savings and loans, public schools or public utilities. In addition, some clubs are now admitting licensed professionals, such as dentists and architects. Each club has specific membership requirements and membership counters to answer questions about policy. To find out if you qualify, call the warehouse to get the information.
Most clubs charge $25 a year to owners of businesses (or purchasing agents for businesses) for a primary card and $10 each for secondary cards (for spouses or friends). Some clubs offer a group card (for one primary card and one secondary card) for between $15 and $30. The cardholders described above pay wholesale prices. Some clubs offer non-business customers the option of membership or paying wholesale prices plus 5%.
Membership restrictions allow the warehouses to track their customers and their needs better than most stores. Suggestion boxes are placed prominently at most of the club doors, and merchandise is stocked based on members’ needs. And the membership format cuts down on paper work, including the cost of hunting writers of bad checks. Filling out detailed membership applications, with home and business addresses and phone numbers, discourages shoppers from writing rubber checks to begin with and helps the warehouses find the culprits when they do.
All of these elements help the clubs cut costs.
“It’s a business of tremendous volume,” said Douglas Hansen, vice president of Price Savers, which is based in Cincinnati and owned by the Kroger Co. “The reason we have low prices is because we have rigid expense controls.”
As the club field becomes increasingly crowded, analysts wonder how profitable the warehouses can continue to be.
“It’s approaching the saturation point,” said Johnson at Piper, Jaffray & Hopwood. “Southern California is the only market where a number of (warehouse clubs) have come head-to-head. It’s possible that still more stores could open in your area, but not nearly in the rate they have opened in the last year or so.”
But warehouse executives say the market is still booming.
“We compete very well with the others,” said Hansen of Price Savers. “Every one of our units is doing very well.” His company reported $300 million in sales for 1987.
Price Savers is the new kid on the Orange County warehouse block. Opened last fall, the 110,700-square-foot building in Irvine is one of five Price Savers warehouses in California and 12 nationwide.
Costco, owned by Costco Wholesale Co. of Seattle, is also a relative newcomer to California. In the past two years, however, the 43-warehouse company opened seven clubs in the state, including one in Garden Grove. And according to President Jim Sinegal, Costco will continue to grow in Southern California: slated to open in 1988 are warehouses in Hawthorne, Van Nuys, Lancaster and Victorville. Sinegal said the company expects to report $2 billion in sales for 1987.
“We don’t think saturation has been achieved,” Sinegal said. “Southern California is as good or better for us than any other market. We find it is a good market because there are so many people.”
Considered the behemoth of membership warehouses, Price Club leads the pack in terms of sales volume. Price Co. reported $3.2 billion in sales for 1987, a year in which the company opened 11 new stores. It is that kind of success that gave birth to the proliferation of copy-cat clubs and has all the competitors scrambling. Next to Price Club, analysts say, Pace and Costco are the largest in terms of sales volume.
“Price Clubs are our model,” said Costco’s Sinegal, who used to work for Price Co. “I’m very familiar with the formula; we patterned ourselves after Price Clubs, which were so successful in Southern California, and then we started ours in the Northwest.”
He said Costco expects to report $2 billion in revenues for 1988.
Pace Membership Warehouse Inc. of Aurora, Colo., which owns the Pace warehouse in Fullerton and six others in the state, is another club on the expansion track. With warehouses set to open in Fountain Valley and Downey this spring, Pace is firmly in the fray.
“We continue to look for additional sites,” said Henry Haimsohn, company chairman. He said his company estimates 1987 sales revenue at between $900 million and $1 billion.
“We viewed the entire (Southern California) area as very competitive, even before we went into it,” Haimsohn added. “Certainly we are affected by not only our direct competitors in the market, but also the myriad of other retail and wholesale companies. It’s a very competitive, changing market. In order to be successful, you have to adapt. It’s important that we offer a good reason for people to shop at Pace.”
The obvious reason people shop at Pace and the other clubs is low prices. But are warehouse clubs right for you?
If you feel comfortable propelling a giant shopping cart around aisles of jumbo packs, and if you have room to store large quantities, warehouse clubs may be your kind of supermarket. Customers also must trek across vast parking lots and pay by check or cash only. The warehouses are hangar-size buildings with concrete floors, industrial shelving and no frills. And if you are the type who likes to ask questions, you may be frustrated. There are few salespeople, although usually personnel posted at the front of the store can answer questions.
On the other hand, the savings are substantial. And buying in bulk means fewer trips to the market. Also, not all the merchandise is mammoth-size. Because the clubs seek individual members as well as business cardholders, the warehouses stock many family-size quantities as well as restaurant-size goods. For instance, near a 6-pound can of peaches, a club may stock a 19-ounce can of Campbell’s Chunky soup or a 15-ounce can of green beans.
The best way to decide if you want to join a warehouse club is to stop in and check out the merchandise. Most clubs will allow non-members to browse without buying, or they will offer a free pass to buy at 5% above the posted wholesale price. The warehouses have membership counters where application forms are distributed, passes are given or questions answered.
With their noisy aisles and bare-bones marketing approach, warehouse clubs are not for everybody. But judging from the throngs wheeling cartloads of merchandise to their cars, shopping clubs are here to stay.
Next Friday: Warehouse clubs that specialize.
COMPARING PRICES AT PACE, COSTCO, PRICE CLUB, PRICE SAVERS During the last three weeks, prices were compared at four Orange County warehouse clubs: Pace in Fullerton, Costco in Garden Grove, Price Club in Santa Ana and Price Savers in Irvine. Grocery items were chosen--rather than large and small appliances, hardware, clothes and lawn furniture--because the clubs carry different brands and models of the latter, making comparisons difficult or impossible. Here are the results.
Price Savers Price Club Item: brand, quantity, price brand, quantity, price Honey wheat berry Bohemian Hearth Bohemian Hearth bread, 2 loaves $2.69 $2.69 Bagels Better Baked 1 doz. Bagel Basket 15 $1.69 $1.99 Liquid Tide 1 2-gal. bottle 1 2-gal. bottle $13.95 $12.99 Cat food, 9 Lives $6.89 9 Lives $6.59 by the case (24 6-oz. cans) Monterey Jack 5 lbs. $7.99 24 oz. $3.39 Cheese Frozen Orange 3 lbs. $11.15 3 lbs. $10.29 Roughy filets Diet Coke, 12-pk. $3.35 12-pk. $3.25 12-oz. cans Crisco, $4.25 $4.69 6-lb. can Post Raisin Bran, 2-pk. $4.85 2-pk. $4.99 25-oz. box Potatoes 10 lbs. Russet 14 lbs. Russet $1.34 $3.79
Pace Costco Item: brand, quantity, price brand, quantity, price Honey wheat berry Bohemian Hearth Fancy Farms bread, 2 loaves $2.69 $2.35 Bagels Bagel Place 1 doz. Bagel Place 1 doz. $1.69 $1.69 Liquid Tide 1 1-gal. bottle case: 16 32-oz $6.69 bottles $32.99 Cat food, Friskies Buffet 9 Lives $6.79 by the case $6.39 (24 6-oz. cans) Monterey Jack 2 lbs. $3.59 2.5 lbs. $3.89 Cheese Frozen Orange 3 lbs. $10.29 2 lbs. $7.79 Roughy filets Diet Coke, 12-pk. $3.25 24 12-oz. cans 12-oz. cans $6.50 Crisco, $4.69 $4.19 6-lb. can Post Raisin Bran, 2-pk. $4.99 2 pk. $4.85 25-oz. box Potatoes 10 lbs. Russet 20 lbs. baking $1.09 potatoes $2.89
WAREHOUSE CLUBS AT A GLANCE PACE Owner: Pace Membership Warehouse Inc., of Aurora, Colo. Number of stores: 32 nationwide; 7 in California. Orange County location: 601 S. Placentia Ave., Fullerton. Phone: (714) 738-7755. Membership fee: Individuals (called premium members) and businesses pay $25 yearly for wholesale prices, or individuals can forgo fee to buy at 5% above wholesale. Number of members: Businesses: 180,000. Premium members: 175,000 (they don’t pay 5% surcharge). COSTCO Owner: Costco Wholesale Corp., Seattle. Number of stores: 43 nationwide; 14 in California. Orange County location: 11822 Gilbert St., Garden Grove. Phone: (714) 534-7080. Membership fee: Business members pay $25 yearly; individuals pay $30 yearly. Number of members: Business members: over half a million. Individuals: over 1 million. PRICE CLUB Owner: Price Co., San Diego. Number of stores: 38 nationwide; 24 in California. Orange County locations: 900 Harbor Blvd., Fullerton; 3500 W. MacArthur, Santa Ana; 33961 Doheny Park Road, San Juan Capistrano. Phone: (714) 441-0588 (F). (714) 241-8160 (SA). (714) 240-3059 (SJC). Membership fee: $25 a year for all members. Number of members: Business members, 760,000. Individual, 1.2 million. PRICE SAVERS Owner: Kroger Co., Cincinnati. Number of warehouses: 12 nationwide; 5 in California. Orange County location: Von Karman Avenue and Barranca Road, Irvine. Phone: (714) 756-2550. Membership fee: $25 for businesses; individuals pay no membership fee but pay 5% above wholesale. Number of members: Business members: over 1 million.