The sign of value
Now, 13 years
was the city in Washington where Costco was then Signature products, members should save at least later, Kirkland
headquartered.) 20 percent over Costco’s price for the leading
Why did Costco, which had always focused on national brand. offering name brands at great savings, expand its However, sometimes the pricing differential Signature
private-label lineup? Because with a private label, between the branded product or a similar product Costco, rather than the manufacturer, controls the sold by other retailers is so large members might has become
product specifications: How much filler is in the dog think that shortcu ts were taken or that the prod-food? What kind of breading is on the shrimp? Are uct is a second. How can Costco sell a pain
the raisins organic? reliever for so much less than Tylenol? Why do accepted and
The goals established from the beginning—to cashmere sweaters at Costco cost less than $100
offer products that would equal or exceed the when another store sells them for three times lauded by
national brand, at a low cost and delivering great that much?
value for the member—have helped propel the The reasons are part of Costco’s operating phi- the industry,
Kirkland Signature brand to more than 300 different losophy. First, incremental costs are driven down as
products representing 15 percent of sales. manufacturing volumes increase. Then, Costco’s
margin on both national brands and Kirkland consumer
Equal to or better than the name brand Signature is no more than 15 percent, while most
A new Kirkland Signature product doesn’t hit retailers have much higher markups. And there are groups and,
the drawing board unless the buyers feel they can no marketing expenses, such as national ad cam-improve on what’s already available. Take Kirkland paigns, built into the price.
Signature tuna, introduced in 2002. The quality of most important,
many name brands had declined to mushy bits; Co-branding
Kirkland Signature canned albacore tuna, with its One innovation that was not foreseen in 1993 members.
solid chunks, created a new industry standard. was co-branded products, in which the brand
In the category of nutritional supplements, for name and Kirkland Signature share billing.
example, Costco was the first warehouse club to Companies such as Newman’s Own, Starbucks
qualify for USP designation (see “No fish tale”), and Mariani have created special items under the
ensuring that “when members buy a Kirkland Kirkland Signaturelabel.
Signature vitamin or mineral supplement, they are “Some companies, such as Tyson, want their
getting exactly what they paid for,” says Charles name out there and are willing to upgrade the qual-Burnett, senior vice president for pharmacy. ity of their product,” explains Tim. It’s important to
“Buyers are always looking at how they can note that a Kirkland Signature by Tyson chicken
improve on the product,” says Dennis Knapp, senior breast sold at Costco is not the same as a Tyson
vice president for non-foods merchandising. chicken breast available at a grocery store. Costco
“It can take a year or more to develop some created an upgrade for the co-branded product,
products,” he adds. “Our buyers are working on the requiring all skin, exterior fat and rib meat to be
Christmas items 13 months out.” trimmed off.
“Every Kirkland Signature product goes These relationships with key suppliers will con-through an exhaustive product-development tinue to grow. “When we developed the precooked
process that can put the vendor through the bacon with Hormel,” Tim notes, “they were so
wringer,” says Tim Rose, senior vice president for enthusiastic about the product, they decided they
corporate foods and sundries. wanted their name on it.”
Continuous improvements Wide acceptance
Getting a Kirkland Signature product from con- Now, 13 years later, Kirkland Signature has
cept to warehouse shelves isn’t the end of the been accepted and lauded by the industry, con-process. sumer groups and, most important, members.
“We’re constantly looking at items, revisiting PL Buyer, the trade publication for the private-them with an eye to making them better,” says Jeff label industry, named Costco Retailer of the Year in
Lyons, who as senior vice president of fresh foods 2004. A leading consumer magazine frequently
oversees the meat, bakery, produce and service rates Kirkland Signature products, such as cook-deli departments. “It may be by improving the ingre- ware, paper towels and others, as “best buys.”
dientsorusing newpreparationmethods. And members such as Tom Redford from
“Another goal is to make it as fresh as possi- Palos Verdes, California, are true fans. He wrote,
ble,” he continues. Recently, the service deli began “Just a short note to compliment Costco on the
using a new food-safety technology for Kirkland fabulous job [you are] doing on bringing not just
Signature sliced roast beef. Not only were two superior pricing but, more important, far superior
chemical additives eliminated, resulting in quality and value to one private label product
improved flavor, texture and overall quality, but the after another. Many retailers print glowing claims
shelf life was also lengthened. The new product will about their private label products. Invariably, they
soon be available nationwide. are over-stated!
“So many retailers place too much emphasis on
Lower prices just the price element … offering cheap [prices], but
Only after buyers are satisfied that they have poorer quality than name brands. What a long-term
created the best-quality product on the market do mistake. Costco knows the real key … saving money,
they consider what price to sell it for. With Kirkland but offering far superior quality and value!” C