Every Costco shopper shares a common trait: membership. Despite its membership model, Costco ranks as the world's third-largest retailer, affirming the strength of its customer base. Renowned for its bulk-discount model, Costco offers emerging brands a lucrative opportunity to reach a loyal and discerning consumer audience.
Matt Duffy, founder of Exponential Advisers, spoke to the Enthuse Foundation community about appealing to Costco based on his experience working with buyers from all the regions. Below are some of his tips.
Click here to watch the entire webinar.
Understand Costco's business model. Costco is divided into divisions with eight separate regions in the United States, two in Canada, one in Mexico, and several international areas. Decisions on food and beverage products are made on a regional scale. However, other CPG products (including household goods, clothing, cosmetics, and beauty) are managed at the corporate level in Issaquah, WA. Also, Costco operates on a rotational basis, so products are available for a few weeks and then out of stock until a future rotation.
Have the Product Packaged Ready for Costco. Costco is known for selling in bulk and expects its brands to be positioned to do the same. Refer to the packaging specifications on Exponential Advisers for specific requirements. Insider's Tip: Roadshows might be a good avenue to pursue as they are four-day selling events where the product is sold directly from your pallet. Click here to visit a roadshow in your area.
Obtain the Proper Certifications. This might require a financial and time investment but is CRITICAL for CPG brands (especially anything consumed). Review Costco's food safety standards here. For example, products made in a shared kitchen might not be Costco-ready.
Prove that Your Product is a Worthwhile Investment. Matt suggests that Costco is looking for companies with more than $500K in sales and a path to $2M in revenue.
Know Your Numbers and Be Honest With Yourself. Can your business afford to sell in Costco? Are you set up for success? Costco requires triple the amount of inventory than traditional retail stores (bulk selling requires bulk packaging). Reach out to Matt directly at matt.duffy@exponentialadvisers.com for specific information and financial spreadsheets.
Plan. Costco looks for products that are six to nine months out. If your product is more for the summer and you want to sell in the Northeast, start your initial reach out in September or October. Similarly, plan your pitch in March to be on shelves for the winter holidays.
Highlight Diversity. Minority? Women-Owned? Make sure your unique characteristics are evident to any Costco representative.
Approach Buyers But Have Patience. Costco buyers are the gatekeepers, and each region will have its own. Click here for contact information from each region. Call the number and ask for the buyer in your specific industry. Insider's Tip: Use professional social media platforms like LinkedIn to research buyers. A search query with "Costco Buyer" brings up numerous results. It's OK to reach out on different platforms, but make sure to reach out only once and follow up a couple of weeks later if there is no response.
Bottom Line: Costco is growing, and its sales prove it. In fiscal year 2023, net sales were S237.7B, a 7% increase from FY22, attributed to new warehouse openings. While there's a tremendous opportunity for emerging brands at Costco, it must be the right fit for both parties. Strategically thinking about your brand's capacity, growth, and operations will help determine if pursuing Costco as a retail option makes sense. Additionally, check out our blog post, "10 Tips for Getting Your CPG Products in Retail," which provides suggestions for approaching other stores.
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