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Why Costco's 'Kirkland Signature' Controls the Generic Brand Market

Costco has become a household name across the US. People have often seen my home and said, "Oh, so you're a Costco family". It's true, we are, and it's because Costco cannot be beat on almost any level. Here at Foodbeast we have often rejoiced at Costco's ability to fulfill our mac n' cheese dreams, and provide us with the finer things in life.

Photo: Signs.com

The question is, what exactly makes Costco such a powerful force in the market? Surely the average person doesn't need 12 cans of tomato paste or 390 servings of emergency foods (at least, we hope not), but there's more to Costco than that. They cleverly created their own line of competitive products at lower prices and higher quality, pressuring other brands to keep up, or fall under the competition.

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We're talking about the ever present Kirkland brand.

Kirkland products are sold at Costco for 20% less than national brands on average.

For example, CNN reported that in 2018, Costco dropped its price of 40-pack half liter Kirkland water bottles to $2.99, forcing brands like Polar-Springs to adjust and keep up. "Kirkland acts as a universal club marshal. It keeps suppliers honest," Timothy Campbell, analyst at Kantar Retail said in the report.

Photo: Signs.com

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Generic brands are popular customer choices when it comes to medication and milk, according to data from Signs.com. However, Kirkland Signature products are unique in the way that "the Costco consumer is very loyal to the KS brand. They will always give the item a shot" stated Costco's wine, spirits, and beer buyer Annette Alvarez-Peters in Wine Spectator's article.

Of course, Costco doesn't get every generic product right, as evidenced by their light beer flop. However, Costco is very aware of this and takes it seriously. They understand that loss of customer confidence means loss of sales and keep their products at a high standard. Despite warnings to investors that their profit margin depends on customer loyalty, there's no loss in confidence.

Kirkland Signature brands are constantly being improved, year after year. Costco Connection detailed the process for selecting the best of the best and emphasizes that KS brands are constantly reevaluated and upgraded to maintain their reputation. This goes for everything from their fitted sheets to their baby wipes. Costco buyers never get too comfortable.

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Speaking of their high standards, it is a not so well known fact that many of Kirkland brand products are manufactured by national brands, with the demand that those brands hold Costco products to a different standard. For example, Bumble Bee Foods supplies Kirkland's canned tuna, but they are required to make sure that the tuna is far more substantial than flaky. In doing so, Costco spent a year overseeing the Bumble Bee Foods plant in Puerto Rico.

At the moment, Costco's canned albacore tuna is sold at $16.99 for eight tins, weighing 7 oz each. Conversely, Bumble Bee tuna is sold at Staples for $37.69 for 12 tins weighing 5 oz each.

To break it down: Costco sells only 4 oz of less fish for less than half the price. Bumble Bee supplies its own competition with a better product, for cheaper.

Costco is the biggest alcohol retailer in the US, with Kirkland Signature Wines notable enough to stand alone as their wine is sourced from name-brand wineries. Some of these include Kunde Estate, Girard Winery, and Champagne Jansson & Fils. Because Costco offers big money contracts, and a guaranteed buy of thousands of bottles these wineries are enticed to sell their fruit to produce Kirkland wine at a lower price than they would sell their own bottles.

Costco is the number No. 1 choice for consumers in the US, and it's no surprise. Their business model is striving and I will happily continue to buy too much peanut butter and enjoy a hot dog on the way out.