Last updated on February 17th, 2017 at 09:17 am
Executives and associates from Costco Wholesale’s Los Angeles-area buying office were the guests of honor at the Food Industries Sales Managers’ Club of Los Angeles luncheon on Jan. 25.
Sarah Wehling, VP/GM for the Los Angeles regional buying office, introduced four guest speakers for the event—buyers in different categories. Wehling herself oversees the buying of the foods and sundries departments for 58 Costco stores, including 51 in the L.A. area and seven in Hawaii.
According to the first speaker, Steve Dickinson, assistant liquor buyer, their buying office is known to have some of the highest-volume stores in the company. To put that in perspective, according to Costco’s 2016 annual report, each warehouse averages $159 million in annual sales.
Dickinson noted other stats for 2016: net sales for the 723-store company were $116.1 billion; it operated more than 104 million s.f. of store space (about 144,000 s.f. per store); it had 214,000 employees worldwide; and more than 2.5 million customer transactions took place per day.
Of the company’s 723 stores, 506 are located in the U.S.—in 44 states, the District of Columbia and Puerto Rico.
According to the annual report, Costco opened 29 new stores last year, 21 of them in the U.S.
Dickinson noted that the most recent California club opening took place last October in Hanford, near Fresno.
“Now that we’re through the holidays, we have two new locations opening in the Southeast region; one next week and one the week after,” he said at the Jan. 25 gathering.
A total of 31 new openings are planned for 2017, including the Issaquah, Washington-based company’s first stores in France (this spring) and Iceland.
Costco’s member base comprises 47.9 million households and more than 86 million cardholders, with a 90 percent renewal rate that generate $2.7 million in cash fees annually.
“Members are a huge priority to us,” he said. “We’re the absolute pricing authority—value, value, value. (We also offer) great merchandising, a treasure hunt atmosphere. When you go to Costco, you see that item you’ve never seen before, and you know you want to pick it up that day because when you come back it may not be there. We’re nimble. We’re a large company but we turn quickly, and we take quality very seriously.”
Jaime Leal, deli buyer, discussed not only his but several of Costco’s store departments.
First up, the liquor department. He said that Costco has now become the largest retailer of fine wines in the country.
“The last fiscal year we did $1.1 billion in fine wines, and total wines came in at $1.8 billion,” he said.
Next, meat.
“In our quality meat department, we sell two choices—USDA Choice and USDA Prime—and we had $6.9 billion last year in sales,” Leal said. “So you can pick up a very nice, restaurant-quality prime steak…and a very nice bottle of Cab to go with that.”
In the bakery department, which had $1.5 billion in sales last year, Costco has recently begun offering made-from-scratch breads, “some very nice baked goods,” as Leal termed them.
In the deli, Costco sold 83 million rotisserie chickens in its stores last year, at the very competitive price of $4.99 each.
“It’s quite a value and the best out in the industry,” he says.
In its food court, its well-known meal deal—$1.50 for a hot dog and a soft drink—prompted sales of 132 million combos last year.
In Southern California specifically, Costco has added car washes to a few locations, including Torrance, Leal said, and “we are going to be building more of them. Phenomenal deal.”
Wendy Coldesina, dry grocery buyer, talked about Costco’s supplier relationships.
“We’re very proud of our ancillary departments and how we do in those departments, but we’re also proud of the relationships that we have with suppliers like you,” she said.
But she was quick to point out that the company also is “very, very proud of our Kirkland Signature line. As you know, it’s our private label brand that we’ve grown and cultivated and, as our president and CEO Craig Jehlinek has said, we will always be known for brand names such as Michelin, Sony and Crest, but we will continue to augment our offering with our own Kirkland Signature items.”
According to last year’s annual report, a number of Kirkland Signature food items were introduced—with a strong emphasis on organics. These items included nut bars, protein bars, quinoa, raw honey, Greek yogurt and hummus as well as a couple of organic pet supplies.
She said the company has had “great success” with a number of its private label items, including its French Vodka, American Vodka and quinoa. The quinoa, in fact, has expanded to all of Costco’s regions. The company works to develop sustainable supply relationships in communities across the globe “in order to secure an adequate supply of high-quality organic quinoa,” according to a video presentation shown during Coldesina’s presentation.
Costco is “working with our suppliers on both social and agricultural development projects, such as solar panel installations to provide electricity and lighting for homes and projects like irrigation systems to areas that previously had relied solely on rainfall. Training and education have led to farmers doubling their yields through the use of organic fertilizers and better irrigation techniques and the installation of indoor cooking stoves to help mothers really cook.”
The Costco mission
Coldesina cited Costco’s mission statement, which is to “continually provide our members with quality goods and services at the lowest possible price. In order to do this, we must obey the law. We will always take care of our members, we will always take care of our employees and we will respect our suppliers. If we do these four things properly, we will inevitably reward our shareholders.”
The company’s buying offices also typically display Costco’s Six Rights of Merchandising: the right merchandise, the right place, the right time, the right quantity, the right condition and always, always the right price.
THE RIGHT MERCHANDISE
This includes quality products, brand name products and Kirkland Signature private label brand products, she said.
“And carrying the right number of SKUs,” Coldesina added. “We only have in our warehouse on average about 3,800 items at any given time. It can balloon up to about 4,000 in the holiday season, but we are most efficient at about 3,800 SKUs.”
THE RIGHT PLACE
“The right place is what our market dictates,” according to Coldesina. “So when we go into each market, we want to make sure we are taking care of the demographics in that market. What is the market preference, what are they looking for? For example, when you’re shopping at our Garden Grove warehouse, you’re not going to usually find the same selection you’ll find in Culver City.”
THE RIGHT TIME
Coldesina echoed what Dickinson said about Costco’s buy-it-now/treasure hunt atmosphere; “if you see it you probably should pick it up because it might not be there tomorrow.”
But also, she said, “We don’t want to just follow the trends; we want to help you (suppliers) set them. So make sure that you work with us on your new items. Bring them to us, give us the opportunity to help launch them with you.”
Coldesina emphasized forward planning with items to help drive top-line sales throughout the year.
“That would include planning around crop seasons and raw ingredients and packaging and even production, making sure we get our efficiencies together within regions to make you more efficient,” she said. “If you get us involved early, we can help commit to volume and help create a more unique and better offer.”
Janine Whitman, candy buyer, picked up with the new product theme.
“Typically, Costco likes to go big or go home, but sometimes we do test items in just select locations. Whether we are going to do a test item or a full item launch, we want to make sure that each location has enough product to promote,” she said. “We want to rapidly turn over that product and then measure our sales and success.”
THE RIGHT CONDITION
“Quality merchandise only, please,” Whitman said. “We’re not interested in seconds or damaged closeouts; we are interested in brands and hot prices.”
She encouraged the suppliers in the audience to work with their Costco buyers on packaging.
“We only have a few moments to catch the member’s attention; we want to make sure that product pops and make sure it’s shoppable from at least three sides so we can get it on an endcap,” she said, adding, but “most importantly, we must have the highest food safety and quality standards.”
THE RIGHT PRICE
“We should explore the least expensive way to move product from your facility to our buildings,” Whitman said. “We could do that by picking up directly from the manufacturing plant, eliminating distributors or third-party facilities. What’s your most efficient size that you make, or what could we do to differentiate Costco from retail with quality enhancements?”
She quoted former Costco leader Jim Sinegal, who was known to say, “We don’t want to just be better in terms of price, we want to be demonstrably better on every single product that we sell.”
Whitman concluded with results from a supplier survey Costco conducted, offering “some helpful tips from your fellow suppliers”:
• Costco does not make commitments on a handshake, so make sure you have that commitment in writing from your buyer.
• Costco is not interested in selling a category or a program; every item should stand on its own.
• Late deliveries and complacency, overcommitting and underdelivering are frowned upon. “We had one supplier tell us that an out-of-stock with Costco was far more painful that it was at (other) retailers,” she said.
• Be prepared for your meeting. Understand your value; Costco always expects a savings over retail.
• Be transparent with each other; be open to changes and improvements.
• Get a champion or a sponsor (in Costco). “If there’s a particular buyer that you’re comfortable working with, call him and get together,” she said. “Be in communication with your buyer as you are developing your item, and we need you to be our champion internally with your company.
“Lastly, keep it simple, do the right thing and have fun,” Whitman said.
