Costco pulls dollars away from wholesalers

Baker Arquimedes Tull, left, and Jena Arduser put away cookie sheets as Toledo's Costco prepares to open.

Baker Arquimedes Tull, left, and Jena Arduser put away cookie sheets as Toledo's Costco prepares to open.

For landscaper Terry Hubbard, joining the Costco Wholesale Club was less about buying bulk trays of muffins for morning snacks than cutting costs at his business.

"It seems like it's going to be a savings," said the owner of Acu-Turf Toledo, who plans to buy paper and other office supplies at the national chain, which is to open its first metro Toledo store today at Westgate Village Shopping Center in West Toledo.

At the retailing giant, businesses like Mr. Hubbard's are in a minority - but a treasured minority.

They are part of a shift in the supply chain serving small business.

Convenience stores, restaurants, janitorial services, and other firms once depended heavily on wholesalers and specialized distributors for their supplies as well as for merchandise to re-sell to customers.

The spaces behind her are expected to be filled with shoppers today as employee Amber Toth makes some last-minute adjustments yesterday to a display before the new Costco in Toledo store opens.

But increasingly, they are shopping at the same places as other consumers. They're watching advertising circulars for hot sales on name-brand soda, and buying up bottles of aspirin at the corner dollar store and hot dogs in bulk at Gordon Food Service Marketplace stores.

The shopping sprees include warehouse clubs like Costco and rival Sam's Club, retailing experts said.

"The majority of my convenience-store customers are shopping everywhere," said Matt Kinnee, manager of the Toledo branch of Detroit-based United Wholesale Grocery Co. "They're cherry-picking."

Costco, the nation's fifth-largest retailer, with annual sales of $64 billion, works hard to recruit businesses.

"It's a large part of what we do," said Mark Facemire, assistant general manager of the Toledo store. "It's how we got started."

The firm sells meat to restaurants and office supplies to service firms, he said.

He wouldn't say how many of the firm's expected 10,000 to 15,000 Toledo members will be businesses. But the numbers likely will be consistent with those of other cities.

Costco Wholesale Corp. said in a federal securities filing late last year that businesses represented 23 percent of primary memberships as of Sept. 3. That's down from 24 percent in 2005. But it's still nearly a quarter of Costco's main category of memberships.

In all, the chain counts nearly 48 million card holders.

For wholesalers, every bulk package of toilet paper purchased at a warehouse store represents lost sales.

But firms like United Wholesale Grocery, 3138 Hill Ave., are fighting back.

Wholesale clubs often sell products in bulk packages unsuitable for the shelves of small convenience stores, Mr. Kinnee said. In contrast, he sometimes divides cases of canned goods in half to meet customers' needs.

"Do they beat me on price on some candy items? Sure," he said. "But lots of my customers say they don't like shopping at Sam's Clubs because of how long it takes them to get in and out. I can have them out in four or five minutes."

He expects Costco to hurt sales, but he is unsure of how greatly. Unlike Costco, United Wholesale doesn't sell to individuals and families. Customers must hold vendor's licenses.

Competition isn't limited to wholesale clubs and places like Gordon Foods. Rivals include a similar cash-and-carry wholesaler, A.H. Jamra Co., 201 South St. Clair St., and a growing number of wholesalers that offer delivery services.

United Wholesale, which has been in Toledo for 38 years, was formerly part of Spartan Foods.

Meanwhile, Mr. Hubbard, of Acu-Turf, will add Costco to his shopping list but won't otherwise change his buying habits. He plans to continue to maintain a membership in Sam's Club and to shop online.

Contact Gary Pakulski at: gpakulski@theblade.com or 419-724-6082.