The age-old dilemma Costco faces as its sets up shop in NZ

Work is underway to build Costco's first New Zealand store in West Auckland. Photo / Getty Images

Costco is at work building its first store in West Auckland, but one commentator says its operations will be hindered if the area's "archaic" liquor licensing rules are not changed.

Since the early 70's West Auckland has been governed by stringent rules which forbid supermarkets and other stores from selling alcohol.

The region is ruled by two licensing trusts - the Waitakere Licensing Trust and the Portage Licensing Trust, which hold exclusive rights to off-license liquor licenses. The monopoly means supermarkets within West Auckland cannot get a license and therefore do not sell alcohol, and the bottle stores in the area are run by the trusts.

Costco Wholesale is known for undercutting its competition, offering alcohol, fuel and a wide range of goods for 20 to 30 per cent lower than what is found elsewhere in the market, but Nick Smale, spokesman for West Auckland Licensing Trusts Action Group, says the rules will stamp out the healthy competition Costco will bring to the market when it opens its doors in 2022.

"It seems like a really arbitrary, silly rule. We have the big supermarket duopoly and Costco is going to disrupt that and New Zealand needs that - we don't have strong competition - so to lock out competition and people that are going to come in and create greater competition is not good," Smale told the Herald.

Parts of the country was once governed by similar trust structures that held exclusive rights, but this changed in most districts in the 90s and early 2000s - with exception of Invercargill and Gore - following the 1989 reform of liquor licence laws, which gave communities the option to remove that monopoly through collecting enough signatures on a petition, equivalent to approximately 15 per cent of registered electors, which would enable a referendum in the area to allow competition.

Smale said West Auckland voted against removing the trust monopoly in 2002/2003. The major supermarket chains both challenged the monopoly without avail.

In a statement, Costco Australia and New Zealand managing director Patrick Noone said Costco intended to work with local authorities to "determine whether it will be possible for us to sell our liquor range within our Auckland warehouse once we open".

But Allan Pollard, chief executive of the trusts, which work together as a joint operation known as The Trusts, said the $3.6 billion retailer would not be permitted to sell alcohol when it launches in New Zealand.

"As Costco is opening inside the Waitakere Licensing Trust boundary they will not be in a position to retail alcohol due to the exclusive trading rights that are in operation as set by the Sale and Supply of Alcohol Act and we have no intention of amending current legislation," Pollard said.

Aerial view of Westgate shopping centre in West Auckland showing the site where the Costco store will open. Photo / File

In response to questions about anti-competitive behaviour, Pollard said: "The Trusts operate under the exclusive trading rights as set up by its communities.

"If the community wishes to change how alcohol is sold in retail outlets in West Auckland and has an appetite to change legislation, the process to do so is clearly set out under the Sale and Supply of Alcohol Act. Therefore, any decision on how alcohol is retailed is at the discretion of the community via a democratic process, not The Trusts or its management."

Smale and his action group have been collecting signatures to bring about change to West Auckland alcohol licensing rules for a couple of years. It needs about 28,000 signatures to trigger action from the Alcohol Regulatory & Licensing Authority.

Nick Smale, spokesman for West Auckland Licensing Trusts Action Group. Photo / Doug Sherring

In Australia, Costco has fought hard to be able to sell spirits, beer and wine in New South Wales and Victoria. The retail company fought to be able to sell these products in South Australia, which ended up in the Australian Supreme Court, as the retail category is one of its most important skews.

"Unless they have found some sort of special loophole - which I can't see could possibly be the case - our (NZ) Costco will be dry," Smale said.

"Costco will service the whole of Auckland so unfortunately the whole of Auckland is going to miss out."

Costco Noone said Australian memberships start from around A$55 each. No price point has been announced yet for Kiwis.

Costco operates on a membership basis, which costs around A$55 in Australia, selling items in bulk and strives to sell major branded items for 20 per cent to 30 per cent less than prices elsewhere in the market.

An artist's impression of what Costco's first New Zealand outlet will look like. Photo / File