Marketing: Retailers rolling in the aisles: The Cargo warehouse club floats a UK challenge in a cut-price sector made in the US

Chris Arnot
Saturday 06 August 1994 23:02

JUST AS Carl Deering was explaining his company's pricing policy on Coca-Cola, an employee flashed by on roller-skates. This would be common enough in Los Angeles, but this was the Black Country.

To be precise, it was just outside Wednesbury near Junction 9 of the M6, site of the latest warehouse shopping club. The new outlet, managed by Mr Deering, is owned by Cargo, which already has one in Croydon and hopes to build a third in Stockport - although plans for the latter are the subject of a public inquiry.

Cargo and its predominantly US-owned rival, Price Costco (Europe), could yet fall foul of the Department of the Environment's tighter rules on out-of-town superstores. If not, a period of rapid expansion seems likely.

Costco also has two warehouses and plans for more. It was first into the field in Britain last year, when it opened one at Thurrock, in Essex. There were rumours, when it started sacking staff after Christmas, that trading had not been as brisk as expected. But Paul Moulton, the managing director, insisted the redundant staff had been hired only for the holiday period.

The second Costco warehouse opened recently in Watford, and there are plans for others near Liverpool, Sheffield, Glasgow and Manchester.

More than 700 similar retail outlets have opened in the United States since the first one 17 years ago. Cargo's managing director, Mark Riches, forecasts a proportionate rate of growth on this side of the Atlantic.

Like Mr Deering, he learned the retail trade with Marks and Spencer. And, although the concept of warehouse selling is American, Cargo is British-owned - by Nurdin and Peacock, the cash-and-carry company, whose traditional customers have been small shopkeepers.

'But that is a shrinking market,' Mr Riches said. 'Nurdin and Peacock had to look at ways of broadening their customer base.'

British or not, the Wednesbury warehouse outlet was opened on the Fourth of July, American Independence Day, and it pulled in 15,027 members from all over the Midlands and beyond.

Cargo claims that new members have been joining at the rate of a thousand a day ever since - each paying a pounds 25 annual fee in the expectation of saving considerably more than that on shopping bills.

Only professionals from recognised 'employment sectors' qualify for membership. The unemployed or those in poorly paid manual jobs need not apply. The savings would seem to go to those who can best afford to pay more.

Mr Deering shrugged. 'That's life,' he said. 'It's a club. If we allowed anybody in, our costs would start to rise. We would need more checkouts and more staff. We can keep prices low because we have a guaranteed level of expenditure from each customer. They spend between 40 and 50 per cent more than the average trolley load in a supermarket.'

Cargo boasts that it sells everything from diamond rings to micro-light aircraft, as well as clothing, food and drinks. The range is limited to about 3,000 lines, far less than the 20,000 of a big supermarket. Mr Deering said: 'In a supermarket, 80 per cent of sales come from 20 per cent of the range. This concept looks at it the other way round and says that 80 per cent of the range is dead.'

There is less choice, but the chance of substantial savings if the customer buys in bulk - if not quite so much bulk as in warehouses in the US. Cargo claims that its knowledge of the British market has enabled it to package in more realistic sizes.

Mr Moulton is dismissive. 'First, the buyers who select our products are British, with experience of the British market. I'm one of only three Americans out of 400 employees over here. Second, we have a much greater emphasis on non-food products like office equipment and sporting goods.'

To join Costco's club costs pounds 20 a year (plus VAT), but the membership qualifications are even more restrictive than Cargo's. Mr Moulton stresses his company is chasing a slightly different market. 'We're looking to sell more to traders. Obviously Cargo wouldn't want to steal all of Nurdin and Peacock's cash-and-carry customers - but I do.'

N&P will have to be watchful. Broadening your customer base in a new market is one thing; stopping a rival from taking your old customers may be quite another.

(Photograph omitted)

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