Here is something that caught our eye this week:
This week, somebody asked us to guess America’s biggest consumer packaged goods brand (measured by sales). We puzzled over it for a while. Was it Pepsi? Hershey? Nestle? Kraft foods? Turns out, it’s none of these. It’s Costco’s Kirkland Signature brand, which has $58 billion of annual sales. Turns out, Kirkland accounts for around one quarter of Costco’s sales. What?!
We have fond childhood memories of Costco – monthly trips to stock up on the essentials and hitting up all those free samples was a staple of our youth. And now that we think about it, we do recall purchasing (very) large quantities of Kirkland ground beef…and Kirkland mixed nuts (so good)…and Kirkland AA batteries…and Kirkland kitchen bags…and Kirkland peanut butter. There might be something there after all.
Thirty years ago, if you went to Costco, you would have found 30 different Costco private-label brands. In 1995, Costco’s co-founder and CEO, Jim Sinegal, sensed an opportunity, as explained by CNN:
“‘We found that there was a resurgence of private-label product, and that was driven an awful lot by the fact that the prices of brand-name products were growing so rapidly,’ Sinegal said at a talk in 2019 at Georgetown University. Rising prices for big-name brands ‘created an umbrella’ for Costco to develop its own brands at 15% to 20% below branded alternatives, he said. Sinegal told Costco’s merchants that he wanted the quality of Costco’s private labels to replicate those found overseas. And he had an unusual request — one name for all of them.
‘The conventional wisdom said that you had to have a different name for every class of product that you had — a la Sears Roebuck with the Kenmore appliances and the DieHard batteries and the Craftsman tools,’ Sinegal said in 2019. ‘We looked at it and we said, you know, we’re in so many countries and we have such a wide array of products we’ll have a room full of attorneys that are doing nothing but trying to clear these names.’”
We love Sinegal’s common sense approach to business strategy. To come up with the name, he didn’t hire a fancy marketing firm either. He just asked staff for suggestions. One of those suggestions was to name it after the location of the company’s headquarters in Kirkland, WA. Pretty simple. When the company moved its headquarters to nearby Issaqua, Sinegal noted that since “nobody could spell Issaquah, we kept [Kirkland].” Apart from streamlining the internal administration (and legal bills) of their private-label business, the move was a counter-intuitive cleaver branding strategy. From CNN:
“‘Kirkland is a proxy brand for Costco. It really means Costco,’ said Christopher Durham, president of Retail Brands Institute, a trade group representing the private brand industry. Kirkland is designed to appeal across demographic groups, he said, unlike many other retailers’ array of private labels that are each targeted at a specific segment of shoppers.
Having one name signals consistency to shoppers — exactly Costco’s goal — and also creates cost efficiencies for the no-frills retailer. Costco doesn’t have to pay for different packaging and can put all of its buying power with suppliers behind Kirkland. A single private brand is emblematic of Costco’s broader approach to merchandise at warehouses: Less choice is better.
While other competitors have branched out into many private labels (Walmart has more than a dozen private brands), Costco has stuck with its Kirkland strategy and refined its branding over the past thirty years. Clearly, it’s paid off. Our reading this week was a great reminder that most of the time – whether you’re in a multi-billion dollar business or a small business – the simple, common-sense solution might just be the best approach.
Have a great week,
Your Chenmark Team