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The Business of Food

by Jennifer Barney


Pitching Costco
3-min read

Sampling is back at Costco. New-to-Costco brands are dusting off their Costco sell decks. Before jumping to pitch Costco, let’s acquaint (or re-acquaint) ourselves with this club business.
Costco is awesome. I shop there and personally over-index on most of these shopper statistics below. 
Source: Numerator
Costco is about value, limited SKU assortment, the treasure hunt, and free in-store sampling. From their suppliers, they demand flawless logistics and high sales hurdles: dollars-per-club-per-week ($/C/Wk). It is rotational business, meaning they test you in one region and you get 13 weeks to prove yourself and you have to continue proving yourself in future rotations.

What has changed in recent years is the strength and competition of the Kirkland private label. Many brands at Costco have now been replaced with Kirkland equivalents.
If your brand becomes a long-standing, high performing item be wary of the Kirkland brand replacing you. If you’re the brand manufacturer maybe you’ll be packing the new Kirkland item anyway, so it’s not a bad outcome. 
But for the vast majority of you reading this, you want to grow your brand. Costco can be a great place to do that if you know what to expect. 
The Costco buyer is not your friend
Or the broker’s friend. Costco buyers pride themselves on being jerks. They like to be late to your meeting just to rattle you. They are demanding. All in the name of being unabashedly on the side of their members: offering value to their members. Period. So the first thing to know is: show the value. More on this below.
Pack size, Packaging, and Pricing
All three will be unique to Costco to fit their no-touch merchandizing and bulk-pack business model. You must anticipate how much you will invest in new printing, packaging, run volume etc. against what is anticipated to sell through. Costco is 13-week rotational business. If at the end of 13 weeks you haven’t sold enough, Costco will cut you loose and you’ll be kicking yourself for spending all that upfront money to get into Costco in the first place. You have to get the economics right and get it to pencil. Pricing is a strict 11% - 14% mark-up off of the cost you give Costco. 

Show the value
The member price needs to be at minimum 20% value compared to the category which can translate to up to 40%+ value to your regular grocery retail price (on an equivalized basis). So do the math and show your work.
Don’t let rotational business disrupt regular business
Be prepared to spend time getting Costco ready. It takes months. In the meantime, you do not want to neglect your other business or put it at risk. Once your first region launch at Costco is over you may have met their hurdles and get to launch into more regions. Or you might not. Don’t allow the Costco new business to make up more than 30% of your total sales because the capital tied up in ramping up can cause devastating losses if you lose regions or don’t get another rotation.
Logistics, logistics, logistics
Can’t say it enough: you have to be ON TIME. Costco business is cross-dock business. They don’t have storage - there is no warehouse behind the warehouse. You can’t have a truck be late or you’ll have to communicate delayed delivery within the hour. If you co-pack, you need to ask about your manufacturer’s Costco supplier track record. 
What kind of items does Costco take?
A while back I would have said that Costco won’t consider any items that wouldn’t be eaten by the bowl full at a Super Bowl party. But I’d be wrong. 
I already know a bunch of you will be writing me about what the weekly sales hurdles are so I’ll save you the email. These are general benchmarks. Every category is different. 
Dry grocery items: $800 - $1000/C/Wk
Frozen: $1000/C/Wk
Refrigerated: $1500/C/Wk
Next week: how to build your Costco pitch deck.

All my best,

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