I recently
saw this tweet from Alexis Ohanian, and I
can't get it out of my head. The not so secret secret to Costco success. Kirkland Signature, its private label brand. See, in 2021, Kirkland
signature brought in more than $59 billion in sales. That's about one quarter of Costco's overall revenue. And based on those numbers,
Kirkland Signature is America's biggest consumer packaged goods brand. When measured by sales. So it's
not only larger than Nike, but also McDonald's,
Hershey, Campbell's
Soup and Kellogg's. So what exactly
is the secret to Kirkland
signature success? Well, honestly, it has a lot
to do with the hundreds of millions of shoppers
just like me. Kirkland signature is known for two things
that I think we can all get behind Low prices
and good quality. Costco develops
its own products under Kirkland signature
to compete with household names
at a lower price. But some not all of these
products are made by the same manufacturers
behind some of your favorite name brands. Costco name brand. hit me. brand Kirkland. Oh, my God. name brand. Costco, this is Kirkland, and this is name Brand. Like so many American
things, Costco and Kirkland
point back to Europe. See, the idea for Costco
came to Jeff Brotman, who Cole called
another retail chain owner Jim Sinegal, after a trip
to France, during which he was introduced to
the wholesale retail model. They opened Costco
and quickly saw success. It went from 0 to $3 billion in sales
in less than six years. So they began expanding. as part of that expansion, they went from selling
exclusively to businesses and opened up
their membership program to people en masse. And during this time,
they also decided to merge Costco
with Price Club. And soon after, Sinegal once again
looked to your for inspiration
and introduced private label products
to Costco's shelves. Costco
stepped into this space, setting the criteria that
they would develop products that were as good or better
than national brands. With the ultimate goal
of saving their customers of what a national brand would typically cost. they were able to do this
by partnering with the same manufacturers behind more premium name brands and buying in bulk,
They soon began selling over 30 private label brands. But there was a problem. See, a lot of these names
were forgettable and Sinegal was troubled
by a lack of brand loyalty. Almost every single class
of product had a different name, the companies attorneys would end up
spending so much time trying to clear all of these
Costco brand names in different countries, and it just was not worth it. So in 1995, Costco launched Kirkland
Signature as an umbrella for all of its private label brands,
and it was named for the location
of Costco's, then corporate headquarters in Kirkland, Washington. Now, Costco
isn't the only brand with a singular
private label, but they're clearly one of the more successful ones. That's because it uses
bargaining power to negotiate lower prices
and demand higher quality
from its suppliers. At Costco, no branded item can be marked up
by more than 14% and no private item by more than 15%. In contrast, supermarkets generally markup merchandise
by 25% and department stores
by 50% or more. So if Costco pays $100
for something, it sells it for around $115, that same item
would go for around 125 or more at a supermarket or department store. So Costco
really hacked the system and cornered out
this market space with Kirkland
signature and name brand retailers are lining up
to be a part of Kirkland. Despite the lower margins. Why is that? Well, it's all about volume. Competitors agreed
to these deals with Costco because Costco
has an incredible reach through its membership
program. The retailer distributes
on a larger scale than any other business
in this country. In 2022, just under 120 million people
had a Costco membership. That's
about one third of the U.S. population. So these retailers
can't afford to not be on Costco shelves. And one way or another. Now, as a matter of fact,
it's profitable for these products
to be on Costco shelves no matter what Manufacturers
are able to get their products
in front of an audience as large as a country by being and Costco. That itself makes switching out a name
brand for the black, red and white label
and packaging worth it. Being in Costco
under Kirkland signature or otherwise guarantees
manufacturers and other retailers access to millions
of potential customers who are already loyal and willing to pay an upfront cost
just to get in the door. In 2022, Kafka's membership
renewal rate reached about 93% in the United States
and Canada Now, if that is not
the ultimate indicator of how committed people
are to Costco and Kirkland signature,
I don't know what is. Costco also reported
it grew the Kirkland signature's market share by 1% between 2021 and 2022. And it's not the only grocer seeing an uptick in shoppers
choosing private brands over
national or name brands. See? One study
actually found that 41% of consumers have bought more private brands
since before the pandemic. it's not just because
they're less expensive. Shoppers
are also considering factors, including quality, sustainability
and so much more. They're also increasingly
seeing private label brands
like Kirkland Signature as on par with big name brands. And that's in part because
retailers are stepping up the quality and selections
of their store brand products by honing in
on some of the attributes that draw consumers
to national brands. now a video producer
at Morning Brew. Tell us about your preferred store
brand in the comments and don't forget
to subscribe to Morning Bear's
YouTube channel for more videos.
