How does Costco offer butter so cheap?

Butter prices have risen 65.3% over the past year, according to Stats NZ. Photo / Getty Images

By Susan Edmunds of RNZ

It was organised chaos this week at Costco when another delivery of butter arrived.

This butter is not just any butter – while the other supermarkets are selling a 500g slab for up to $10, Costco’s butter is $9.99 for a kg.

Jody Middleton was among the crowd waiting to stock up on Monday.

“I have to say most people were pretty polite about it,” she said. “We all knew what we were there for, Costco staff came out and had a chat before they even opened the door, answering questions.”

She said it was worthwhile braving the crowds. She buys 12 boxes of butter to last her bakery a week.

If she bought her butter elsewhere it would have cost more than $800 more. “Compared to Woolworths, it’s a saving of $838 for my business in a week.”

Butter prices have increased significantly over the past year. Stats NZ data showed last week that butter prices were up 65.3% in the 12 months to April.

Costco butter gets snapped up almost as soon as it arrives on the shelves, with one Taranaki man making the 750km return trip to get it.

‘The Costco cowboy’

Kaleb Halverson decided to start making the trip from New Plymouth to Auckland to deliver Costco’s 1kg blocks of butter at $9.99 to customers across the Taranaki region.

He only had a few orders at first, but they kept rolling in.

Halverson makes the trip every few weeks with the next trip set for May 29, and he told Checkpoint the idea started out as an idea from his mum.

“After she made a trip up [to Costco] herself and came back and just thought why not get groceries from there and bring them back for everyone else.”

He brings back everything the store has to offer, but said butter is definitely top of the list. “It’s our hot item; at the moment, every order has butter.”

Other popular products are cleaning products and snacks.

At the moment, he is just servicing the Taranaki region with orders made through his website.

Halverson does the orders on top of his fulltime job, so the 10-hour round trip is done on a day off.

“We wake up at 4am, pack the car with a bunch of chilly bins drive up four and a half hours.

“We go and we buy what people have ordered, spend quite a few hours in Costco looking for everything, pack the car and just head back.”

While he has only done a few trips so far, the last trip he brought back 160 blocks of butter, storing it in chilly bins and chilly bags.

Now renting a van, Halverson said they can do 300 blocks with a limit of 15 blocks per customer and a fee of $2 a block which makes it $12 a kg.

He said they were losing out on money on their last trip, so they have upped the service fee from $10 to $40 to cover the cost of petrol and van hire.

Halverson told Checkpoint it was still economical for customers to beat the rising cost of supermarket groceries.

“It seems to be worth it for people because we’ve got quite a few orders.

“It’s unaffordable at the moment just everything here.”

Halverson admitted he will likely have to leave even earlier for his next trip to Costco on May 29, with customers queuing to get their hands on the $9.99 1kg block before the store even opened.

Retail consultant Chris Wilkinson of First Retail Group said Costco knew it had to have a pricing advantage to maintain its value proposition for shoppers.

“So achieve that through a pack size that no other retailer offers, and by making a little margin off a lot of volume.

“Also, as a global retailer they will be one of the world’s largest purchasers of dairy product which will afford them better deals than any Australasian retailer could hope for. They are trading on the world market.”

He said the pack size was probably not ideal for many households. “And the fact that you still have to spend your $70 to get your membership each year… all these things need to be considered.”

Chris Schulz, a senior investigative journalist at Consumer NZ, said it looked likely that the Costco butter was a loss leader.

“The retailer’s Facebook page is flooded with people speculating when the butter might be back on shelves, debating when to visit, and showing off when they do get it.

“With butter costing at least $17 per kilo elsewhere else, Costco’s pricing makes them look like the ‘good guys’ in contrast to our supermarket duopoly. Once they’re in store, I’m sure many people are picking up roast chickens, cheese, and giant tubs of biscuits too.”

Fonterra said it could not comment on the pricing models of other retailers, and consistent rises in global dairy commodity prices could lead to an increase in the wholesale price of products like butter and cheese.

“We are committed to keeping prices as low as possible, but they may sometimes need to be adjusted to reflect the increased costs.”

-RNZ