Costco to Challenge Price Club in S.D. : Merchandising: For the first time, Price will be confronted on the home ground it has long dominated by another major membership wholesaler.

Although Price Club’s domination of the membership warehouse industry has been reduced in recent years by an onslaught of competition, the San Diego-based wholesaler could always rely on San Diego County as its own turf, a lucrative market that it virtually controlled with five high-volume locations.

Until now.

Costco Wholesale, the Kirkland, Wash.-based company that is challenging Price for industry leadership, is in escrow to buy the first of what could be several San Diego County locations.

If Costco closes escrow, starts construction in July and opens the outlet in November as is planned, the company would be the first membership warehouse chain to challenge Price’s hegemony on its once-inviolate home turf. The Costco outlet would encompass 118,000 square feet and employ 150 workers, about half of whom would be part-timers.

“We looked at it as the San Diego market, as opposed to Price’s back yard,” Costco PresidentJim Sinegal said Monday. “We have been looking for opportunities (in San Diego), and we considered that site to be a great one. There is not a site like that available anywhere else” in the San Diego area, he said.

Asked how many locations Costco might eventually develop in the county, Sinegal answered obliquely, saying the area can support many more membership warehouses than the five Price Clubs now operating--in San Diego, Chula Vista, Santee and San Marcos. Price plans to open sites in Carlsbad and the Carmel Mountain Ranch area of northern San Diego this fall.

“In the Puget Sound area, which is about comparable with San Diego County in population, we operate nine units, and a competitor of ours, Pace Membership, has two for a total of 11. So there is opportunity” for expansion in San Diego, Sinegal said. Sources who have talked to Costco executives say the chain plans to open three or more county outlets.

Daniel Barry, a retail analyst with Merrill Lynch & Co. investment firm in New York, said that, if Costco does make a move into San Diego, it would be “efficient to have more than one location. It covers your supervisory costs and distribution costs” to have multiple units in a given area, he said.

“This is absolutely not good news for Price,” Barry said. “They’ve been suffering from increasing competition from other warehouse clubs that have come into the California market. Price founded the discount warehouse concept in 1976, and, for 10 years, they had no competition. But the cannibalization started in 1986, and it continues,” Barry said.

Once the unquestioned industry leader, Price Co., with 80 locations and $6.76 billion in 1991 sales, has been surpassed in total outlets by Costco and Bentonville, Ark.-based Sam’s Club. Sam’s Club now has higher sales as well. Price still leads in annual sales volume per store, averaging more than $100 million, but Costco is closing fast.

Price Co. Vice President Daniel Carter declined to comment on Costco’s planned entry in the San Diego market, saying it is not his company’s policy to comment on competition.

Costco could also turn out to be the first beneficiary of a new San Diego City Council policy of being more hospitable to incoming and expanding businesses so as to attract jobs and tax revenues to the area. Initiated earlier this year, the program was the city’s response to widespread complaints that red tape makes San Diego inhospitable to business.

Douglas Allred Co., the developer of Costco’s site, last week received a site approval from the city in less than three months, a process that under normal circumstances could have taken “months or years,” said Kurt Chilcott, deputy director of the city’s Economic Development Division.

“These stores can do up to $100 million in sales, which translates to $1 million in sales tax to the city, so it can be significant benefit for us,” Chilcott said.

Chilcott said the city’s “fast track” approval process had up to now been used mainly by biotechnology companies for relatively simple expansions of an existing plant. The Costco project, on the other hand, was one of the first “that involved a more complicated construction project,” Chilcott said, adding that the project required two City Council votes.

The Costco site is on 11.5 acres in the Allred-Collins Corporate Center, a 167-acre project on the southeast quadrant of the Interstate 805-California 52 interchange. Costco now operates 85 membership warehouses in 13 states and Canada.

Last year, Copley Newspapers bought a 44-acre tract in the same industrial park for future offices and printing plant for the The Union-Tribune Co. But Copley Newspapers Editor in Chief Herb Klein said Monday that there are no immediate plans to build on the site. “We have it on hold at this point. We haven’t canceled it, haven’t moved ahead,” Klein said.

Three years ago, Pace Membership, a wholesale chain based in Aurora, Colo., leased a site on California 78 and Emerald Avenue in Vista and announced that it would become the first chain to challenge Price Co. in San Diego County.

But the developer of the Vista site, who was leasing the property from the city of Vista, ran into financial difficulties, which led to repeated construction delays. In January, Pace Membership finally abandoned all claim to the site and said that, for now , the chain would stick to existing markets and not expand into the San Diego area.

But interest in the Vista location is keen among other membership warehouse chains, said Vista Economic Development Director Bob Campbell. The property will be developed quickly, he said, once it is freed up from bankruptcy proceedings later this year. Costco, Price and Sam’s Club, the three leading discount chains, have all had discussions with Vista about acquiring the location, Campbell said.

“The location has extremely high demographics. More than 460,000 residents can reach it in 20 minutes,” Campbell said. Home Base, formerly Home Club, and Circuit City each plan to open outlets in the Emerald Avenue-California 78 area, he said.

Although it is said to be looking for San Diego locations, Sam’s Club thus far has announced only three new California locations. They are in Riverside and Calexico, both opening this summer, and in Yuba City, opening in early 1993.