Five-pound blocks of cheese? Five-gallon jars of mayonnaise? For some shoppers, that’s all in a day’s work.
Costco opens its Costco Business Center in Minneapolis on Wednesday, one of only 17 in the country and a first in Minnesota. Tailored to small businesses, it’s open to all Costco members but piled high with products for businesses such as restaurants, caterers, day-care centers, convenience stores, motels, vending machine operators and offices.
“Minnesota is one of our most productive markets for foot traffic and membership,” said Rob Parker, vice president of Costco’s business center operation. “The site fits our needs and is close to the central business districts of Minneapolis and St. Paul.”
Shawne Murphy-Johnson, co-owner of BlackStack Brewing in St. Paul, plans to buy bottled water, various flavors of pop and snacks. “I’ll see what they have in the store, but then we’ll probably have our order delivered.” She estimated she will be able to lower her cost of snacks by two-thirds. “This is an incredible opportunity for us,” she said.
Costco members used to its retail outlets will see a very different store. The business center, at 3311 Broadway St. NE., will not have a gas station, liquor store, food court, pharmacy, optical service, hearing aids, photo or copy services, apparel, toys, books, bedding, jewelry, tires or sporting goods.
A quarter of users of its business center order online, Costco said, which relieves the parking crunch. Nearly 70 percent of the items in a business center are not sold in a traditional Costco. Shoppers will find pantry goods, commercial-grade appliances, candy, beverages, office supplies, frozen foods, packaged foods, beverages, tobacco, hardware and janitorial supplies.
In the freezer section, shoppers can load up on 50-pound boxes of ground beef or carcasses of pigs, goats and sheep. The walk-in cooler is supersized, nearly 11,000 square feet, with three temperature zones. Customers in markets such as Phoenix, Orlando and Los Angeles can put on a jacket while shopping in the cooler. In summer, the Minneapolis store will also have jackets available. But Jason Shield, who transferred from a California location to become general manager of the store, asked, “Will Minnesotans really need a coat?”
The center of the store is filled with candy to supply convenience stores, movie theaters and vending machine operators — but also isa popular destination for traditional members. “Chips, crackers, candy and drinks sell well for parties and school functions,” Shield said.
In a traditional Costco, items move to different aisles to create a treasure hunt-like atmosphere that leads shoppers to spend more. Costco doesn’t do that in business centers. “We know our core business shopper is on a tight schedule,” Parker said.
Jeff Fisher, owner of Fireroast Cafe in Minneapolis, said saving time is one of the main reasons he’s interested in buying from Costco’s business center. He’s hoping that he might be able to use Costco and source from one supplier instead of four.
He spends almost 25 percent of his time shopping, often at traditional Costco stores, but he plans to take advantage of the business center’s 25-mile delivery area. Orders larger than $250 are delivered free. On smaller orders, the delivery fee is $25. “If I can consolidate where I source, ensure consistency, and get more face time with my customers, that’s huge for me,” he said.
Parker said Costco business centers compete chiefly with professional supply firms rather than retailers. “We’re competing with Office Depot and Staples for office products, Sysco and Restaurant Depot for food, and Core-Mark and McLane for convenience stores,” he said.
One of Costco’s biggest competitors, the Sam’s Club unit of Walmart Stores Inc., does not have separate business-center stores. It sells a variety of office products and mega-sized packaging suitable for small businesses and large gatherings. In January, Walmart announced it was closing about 60 Sam’s Club locations, including in St. Louis Park and Moorhead, Minn.
Kevin Reich, a Minneapolis City Council member whose ward includes the new Costco, said the city saw many advantages in the center. “It’s a big boon for small entrepreneurs in Northeast,” he said. “Not only does it repurpose a large building [formerly Immedia], but it offers well-paying jobs.” Costco recently raised its starting wage to $14 an hour. Wages for experienced employees go up to $26, Shield said. The center employs about 80 workers.
Costco’s traditional stores are usually near freeway exits in the suburbs, but the business centers are near business hubs, according to Chuck Cerankosky, a retail analyst at Northcoast Research in Cleveland. Parker said Costco will test the Minneapolis market for a couple of years before adding any more business centers.
The company, which has 520 traditional stores and business centers in the U.S., is adding two to three business centers and 30 traditional stores per year. He wouldn’t confirm any new stores in Minnesota in the near future.