Shopping at Costco can feel like the next best thing to shoplifting! Here's why Costco's Kirkland Signature products are such a steal!
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00:00Shopping at Costco can feel like the next best thing to shoplifting.
00:04Here's why Costco's Kirkland Signature products are such a steal.
00:08Contrary to popular belief, Costco just doesn't slap its Kirkland Signature label on any and
00:13every product it can get its hands on. The warehouse famously only sells about 3,800
00:18products at any given time, with that number including a combination of Kirkland Signature
00:23and name-brand products. Even a similar wholesale club like BJ's typically has
00:27nearly double the number of products on its shelves at a given time.
00:31It means that every Kirkland Signature product that ends up on the shelves was carefully thought
00:35out and researched before the store decided to sell it in bulk. That also ends up translating
00:40to customers trusting the brand, because Costco has taken out the guesswork for them by telling
00:45them that anything with the in-house label is a high-quality product. The attention to detail
00:50goes even further, particularly when it comes to keeping supply chain costs as low as possible.
00:55That was the thought process behind the 2014 decision to change the shape of Kirkland Signature
01:00cashew jars. By switching from a round container to a square-shaped jar for the nuts, the manufacturer
01:06could fit a larger amount of product onto every truck. It may seem like a small detail, but it
01:11has a big impact on Costco's yearly profits and the amount of money its loyal customers can save.
01:16"'Cause at Costco, you save money."
01:21Kirkland Signature is a humble brand in appearance and has been a staple on the
01:25shelves since Costco began selling all of its privately labeled products under the brand name
01:30in 1995. The name pays homage to Kirkland, Washington, which was the original location
01:35of Costco's headquarters. The decision to create one cohesive brand helped with
01:40brand recognition among Costco customers and was a money-saving measure.
01:44Costco only has to have one uniform packaging for everything,
01:47foregoing the need for large marketing strategists and designers.
01:51Additionally, Costco doesn't need to fund extensive legal operations for trademarking
01:55and approving different brand names for products in various categories.
01:59It's one brand that attempts to appeal to all members, and it's a method that's succeeding,
02:04considering Kirkland's $59 billion in sales in 2021 alone.
02:08There's also a psychology behind keeping the customers' options limited. By only offering
02:13one or two options for items in most categories like cereal or dish soap,
02:17customers are encouraged to buy more. They don't have to put much thought into every purchase,
02:22taking some of the work out of a mundane shopping trip. Additionally, research shows that customers
02:27are more often unsatisfied with a purchase if they had to choose from a wide variety of brands.
02:33A huge portion of the products customers will find on Costco shelves are simply labeled with
02:37the Kirkland Signature brand like typical generic products at any average grocery store.
02:42But certain items are often labeled with both Kirkland Signature and a large name brand company
02:48to create a quality product for a low price that is exclusive to customers who are Costco members.
02:54One of the easiest partnerships to recognize is Starbucks Kirkland Signature House Blend,
02:59which is sold in two-and-a-half-pound bags. Some of the other co-branded products include
03:03Reynolds Aluminum Foil, Jelly Belly Jelly Beans, and Ocean Spray Cranberry Juice.
03:08These types of partnerships ultimately help Costco save on shelf space by offering a name
03:13brand and generic version of a product all-in-one. It's a far cry from the early iterations of
03:18generic store products seen in the 1970s that weren't marketed to customers as trusted items,
03:23giving them the stigma of being low-quality products in comparison to familiar names.
03:28Costco doesn't see sales split between two different brands and gives the customer one
03:32single option to pick up while perusing the aisles. It also helps boost Kirkland Signature's
03:38credibility by co-branding with an already well-trusted and profitable brand.
03:43The limited number of products at Costco compared to the average grocery retailer
03:48impacts the specific products that get the Kirkland Signature label. As we said,
03:52Costco doesn't just label anything and everything with the coveted Kirkland Signature name.
03:57They sell baby formula and they sell coffins. You can literally buy everything you need
04:00from birth to death.
04:02In 2021, the average supermarket sold more than 35,000 given items at a time.
04:08That makes Costco's fewer than 4,000 items seem like next to nothing,
04:12even though anyone who has visited a store warehouse knows that it certainly doesn't
04:15feel understocked. Costco's CFO, Richard Golanti, told the Wall Street Journal in 2017,
04:21We try to be agnostic on the Kirkland Signature brand. We try it like any other brand. Costco
04:27offers a limited number of products, and only a fraction of them are under the Kirkland Signature
04:31label. It's a delicate balance, as Costco knows even its best efforts just can't compete with
04:36solid brand recognition. For example, you won't find Kirkland Signature cola on the shelves
04:41anymore, as the brand decided that Pepsi and Coca-Cola have cornered that market,
04:46and the majority of customers aren't interested in exploring a third option.
04:50The major appeal for any retailer to invest in creating its own private brand
04:54are the general profit margins. Low prices are part of the ethos of Costco,
04:59and co-founder Jim Sinegal has always prioritized this factor. It's why one of his steadfast rules
05:05for Costco has been that no item in the store can be marked up by more than 15 percent.
05:09That includes alcohol, which isn't a typical pricing point by any means.
05:13In comparison, as of 2021, Walmart's average price markup was 32 percent, and Target's was 46 percent.
05:21Realistically, Costco could be making more money on some of its cult favorite items,
05:25but it's not part of the business model. That commitment helps to further boost
05:29the trust among its customers. The success of a private label like Kirkland Signature
05:34helps Costco stick to this pricing model. The company saves money through the private brand
05:38by purchasing products directly from the supplier rather than dealing with any middleman. This is a
05:44factor that typically drives up costs for the average retailer, which needs to source tens
05:48of thousands of products to fill up its shelves. It's not a surprise that the majority of Costco's
05:54spending ends up going toward its Kirkland Signature brand. Costco, unless it partners
05:58with other brands, is solely responsible for the packaging, sourcing, supply chain management,
06:03marketing, and more of every product under that umbrella. Costco's commitment to the Kirkland
06:08Signature brand is also a key indicator of the way private store labels have impacted the shopping
06:13market, and how public opinion toward generic brands has shifted in recent decades. In 2022,
06:20more than ever, in an attempt to save money wherever they can with inflation and supply
06:24chain issues, people are opting for generic store labels that often boast the lowest price.
06:30In the case of Costco, Kirkland Signature as a brand is a draw to people paying for annual
06:35memberships. The low price is what first appeals to customers, but the high-quality products are
06:40what keep them coming back for more. Another factor that helps Costco's profit margin significantly
06:46is its commitment to buying in bulk for its Kirkland Signature brand,
06:50just like its loyal customers do at the end of the supply chain.
06:53I feel so calm here, just knowing all the bulk deals are waiting.
06:58The bulk factor is a major draw for suppliers to be incorporated into the brand's private label,
07:04especially in sectors like wine that typically aren't bought or sold in massive quantities.
07:08Those manufacturers may be able to sell their products, like bottles of wine,
07:12for more on their own if they didn't opt to be labeled as the generic brand.
07:16However, Costco signs massive contracts committing to purchase bulk amounts from
07:20suppliers for its Kirkland Signature label, likely making those suppliers more money in
07:25a shorter amount of time than they would with traditional sales. When brands like
07:29wineries partner with Kirkland Signature, they are ultimately introduced to a massive
07:33and committed customer base in Costco stores. If those customers are particularly satisfied
07:38with a product, like wine made by a specific variety of grapes, they may be interested
07:43in seeking out higher-priced options from the original retailer in the future.
07:48Costco also has the added benefit of almost guaranteeing that its customers are going to
07:52buy large amounts of its products, likely more than they would at a typical grocery store.
07:57It sells nearly everything in bulk for that reason,
07:59which also benefits its profits in the long run.
08:03Customers approach a shopping trip to Costco differently than the average grocery store.
08:07There is the mentality to stock up on items because they are cheap, which can lead to overbuying.
08:12An entire case of mushroom soup for $4.99? Damn it, Costco, you've done it again.
08:18As Deal News editor Benjamin Glazer told The Motley Fool,
08:22grape prices are why you walk in to buy milk and walk out with a big screen TV.
08:27I thought I would spend about $25, and I ended up spending over $700.
08:33And Kirkland Signature low markup prices are often a culprit.
08:37Even the sheer amount of toilet paper Costco sells is astounding.
08:41Back in 2012, a CNBC report determined that Costco sold
08:45one billion rolls of toilet paper in a single year. It's enough to go around the earth 1,200 times.
08:51This was nearly a decade before the great toilet paper shortage of the 2020 COVID-19 pandemic,
08:57so we can only imagine how high those numbers are now.
09:00A major factor in Costco's ability to keep prices low is the membership fees.
09:04Costco members pay between $60 to $120 a year to shop at the wholesale club,
09:10in comparison to the typical catch-all store that costs nothing to walk through the doors.
09:14Those fees end up accounting for more than half of the company's profits.
09:18It's not a total shock that those fees rack up quite a profit for the brand,
09:22as Costco has more than 90 million loyal members who shop at its stores,
09:26according to a 2018 CNN report. Costco members are incentivized to pay the annual fee in exchange
09:32for the ability to access the chain's low prices and exclusive Kirkland Signature items.
09:37Because Costco can rely on annual fees for such a large percentage of its profit,
09:42it's able to apply cost-saving measures for those members. For example,
09:46Costco has famously always sold its rotisserie chicken for $4.99,
09:51which is oftentimes less than half the price that other grocery stores label their home-cooked
09:55birds. The price tag doesn't generate any profits for the company, but it isn't designed to.
10:00The purpose of the low price is that it encourages members to come in for the deal
10:04and potentially purchase more than just a $5 chicken during their shopping trip.
10:09It's not often that you flip on the TV and see an advertisement for Costco's
10:12low prices and famous food court. This isn't just a twist of fate,
10:16it's because advertising isn't a focal point of the wholesale brand's overall operation.
10:20Another benefit that those loyal Costco members get is that the brand doesn't have to work overtime
10:26trying to attract new customers to shop in its stores. It means that members can enjoy
10:30all of the best prices whenever they enter a Costco, without being bombarded with advertisement
10:35deals regularly. Even decades ago, when Kirkland Signature was still a relatively new brand on the
10:40shelves, Costco never paid for billboards and commercials to attract new members into its stores
10:45because it just wasn't necessary. The decision helps the retailer to save 2 percent or more a
10:50year in costs, and it's one of the savings that is reflected in the low price tags of most of
10:55the brand's products. Costco also saves money by not hiring employees to unpack boxes, stock shelves,
11:02and set up elaborate store displays to attract customers to pick up a new item.
11:06Anyone who has been to a Costco knows it's a unique experience that is comparable to a treasure hunt.
11:11Oh, I love this place. I'd love to get lost in here. Wouldn't it be something?
11:17The store is full of industrial shelves and massive boxes of bulk products for eager customers
11:22to find and throw in their carts. An added benefit to keeping the store plain and simple
11:26is that Costco also doesn't have to pay money for research and supplies to keep the design on trend.
11:32Costco warehouses often don't even have windows inside, let alone decorated spaces. Aesthetics
11:37just aren't a factor, and they're another reason that the brand can pass along savings to its
11:42members. In fact, Costco makes a whopping $1,200 per every square foot of its store, which is double
11:48that of the average grocery store. The added gimmicks and displays aren't necessary. The brand
11:54can turn over its select amount of products, many of which are under the Kirkland Signature brand,
11:58much faster than other competing retailers.