Source: costco.com
Why has Kirkland Signature been so successful?
The Kirkland Signature brand exceeded $59 billion in sales in Costco’s 2021 fiscal year, up 13.4 percent year-over-year and accounting for 31 percent of the wholesale club’s total revenue. How did it get so big?
The size of the Kirkland brand surpasses all but a few CPG giants — only Nestlé, Procter & Gamble, PepsiCo and Unilever appear bigger — and it is by far the largest CPG private label. Walmart in 2020 put its Great Value brand at somewhat over $27 billion globally.
Costco formed the Kirkland brand 1995 and quickly expanded it across categories ranging from diapers to toilet paper, tires, golf clubs, luggage, wines and rotisserie chickens.
As noted in a recent CNN profile, one reason for its size was the decision by Jim Sinegal, Costco’s co-founder and CEO in the nineties, to focus on a single brand.
“The conventional wisdom said that you had to have a different name for every class of product that you had — à la Sears Roebuck with the Kenmore appliances and the DieHard batteries and the Craftsman tools,” Mr. Sinegal said in 2019 at a talk for Georgetown’s McDonough School of Business. “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.”
A second priority for Costco from the start was to make Kirkland’s products “equal or better quality than national brands” while striving for comparative savings of at least 20 percent.
Costco was expanding in the U.K. in the early nineties and Mr. Sinegal saw many chains overseas finding success with higher-quality house brands.
Costco usually gives a brand name supplier the chance to make the cheaper Kirkland version and often forms collaborations, such as Starbucks-roasted Kirkland coffee beans or Kirkland Einstein Bros. bagels. It has also abandoned store brand categories, including cosmetics, soda and toothpaste, if the national brands perform significantly better. Costco’s CFO Richard Galanti said of Kirkland in a 2017 Wall Street Journal article, “We try to be agnostic on it. We try it like any other brand.”
- Costco 2021 Annual Report – Costco
- Walmart’s Great Value brand earns more than $27 billion annually – Store Brands
- Why every Costco product is called ‘Kirkland Signature’ – CNN
- Costco Wholesale Corporation Co-Founder and Former CEO Jim Sinegal – YouTube/Georgetown University
- How Kirkland Signature Became One of Costco’s Biggest Success Stories – The Wall Street Journal
Discussion Questions
DISCUSSION QUESTIONS: What are some obvious and less obvious factors in the success of Kirkland Signature? What can other retailers learn or replicate from Costco’s approach to Kirkland?
Poll
Loading …BrainTrust
The centerpiece of Costco’s Kirkland brand strategy is trust. Costco works hard to ensure that the manufacturers meet high quality standards for their Kirkland brand. Quality products further build the trust as it extends across categories. No one brand strategy works best for all, and I’m not sure others should simply mimic what Costco has done. But I will say the simplicity of containing all product categories in a master house brand provides tremendous efficiency and leverage.
I agree! Just putting one name on all one’s products is not going to make them appealing. But knowing that the one name stands for quality one can trust at a price worth the trip, across the array of products, is a different proposition.
Quality. Reliability. Focus. Costco has strategically approached Kirkland Signature in a way most other retailers have not (or cannot). Costco is a shrewd operator that puts the member first.
We are big Kirkland fans and the reason is simple – mostly great products at very good prices. Their laundry detergent and dishwashing pods have been at the top of Consumer Reports for years in terms of effectiveness, yet they are at a substantial discount. Their Sauvignon Blanc and Prosecco may never win awards, but it’s hard to beat drinkable wines at those price (not to mention the Rioja, Chianti, and Malbec). And they have mixed nuts at half the price of Planters. I could go on forever. They’ve rarely let us down, which means when a new item comes out we’re quick to try it. They embody everything you think about in brand building.
I guess great palates taste alike (or something like that.) My wakeup call for how serious Costco was about Kirkland Signature quality came in the liquor department as well. I was gazing longingly at a display of The McCallan 20 year old single malt — my all-time favorite. When my gaze shifted to see a 24 year old KS Scotch — sub-branded “by The McCallan” sitting right next to it for a slightly lower price. Wow!
But to the question Tom posed — Jim Sinegal got the European own-label strategy long before any U.S. retailer figured out that it is supposed to be private BRAND — not private label. That was the difference.
For consumers, price is both the most and least important factor – in reality, what they are looking for is a rather nebulous “fair price” – a price that matches the quality. As Costco highlights, Kirkland does just that – good quality at a competitive price. I’d say that’s the obvious reason for the success.
Other retailers can take note of how this was effective – many store brands/private labels present as low price products – and they look it. Small elevations to the style and quality go a long way, putting them with others that are strong in this space, including Trader Joe’s and Target.
Private label does not need to mean dull and boring all white packaging and product of questionable quality. Quality products like those from Kirkland are just as good as national brands and for the most part less expensive. The jars of mixed nuts and frozen berries from Kirkland are excellent examples of this, to name just a few.
Given that so many families are struggling with the crazy high prices of almost everything they need today, it’s no wonder that Costco and the Kirkland brand continue to grow.
Above all else, Kirkland Signature is trusted. This means that consumers have come to rely on the quality, consistency, and value provided by this brand. Another factor that continues to contribute to its growth is the approach that Costco takes in the overall management of the portfolio. Simply put, Kirkland Signature IS a brand! Their approach to packaging, messaging, placement, and marketing is not dissimilar from the largest CPG companies in the world. And having a common brand naming convention across all categories has been their secret sauce.
Costco does not treat Kirkland Signature as an afterthought or as a brand equivalent — make no mistake, this is their brand.
Other retailers rely on the success of a national brand to generate their private label sales (which certainly results in meager sales growth) rather than driving their “owned brand” and putting emphasis around that portfolio. For any retailer looking to bolster sales of their private label, take a page out of the Costco playbook!
Product. Quality. Value. Consistency. Every single product, every single time. Adding up to brand promise delivered. Every single time.
The key is in sourcing, SKU, and merchandising strategies, focused on value and transparency. They have limited SKUs and one size, which allows them to be highly focused on price/quality. They show the per-unit price and place them next to branded CPG products that clearly show the customers the price difference. Building trust in the quality and brand equity of Costco has been decades in making, and it is unstoppable now.
One obvious reason for their success is that Costco puts quality into the Kirkland product that it then sells for no more (or even less?) than well-known national brands, thus providing the one thing that consumers recognize quickly: value. With a now-established track record, putting the name Kirkland on all of Costco’s private label assortment is like putting a seal of approval on every product.
Kirkland offers a quality product at a low price, in a location where consumers don’t care about the brand name. The fact that Costco intentionally doesn’t compete in categories where certain brands are already dominating market share is also very strategic. Costco knows its place with Kirkland, and that’s why it succeeds. It doesn’t try to swim in any lanes it can’t own.
Kirkland is an extension of the value promise Costco extends to customers. Costco is all about discovery and value. The ability to offer even bigger discounts through the Kirkland brand without sacrificing quality really resonates with customers, and a robust return policy encourages trial with zero risk. Kirkland has always been managed as a full-scale brand in its own right, and not as a “replacement.” This attitude makes a difference with how consumers embrace the products.
As an attendee of most of the PLMA shows over the past 25 years, I would frequently see Costco buyers on the floor and in the educational workshops. They always had a set plan for what specific products they were looking for and it would change each year. This gave me the impression that there was a master plan somewhere in HQ with a roadmap of which items in the different categories Costco was targeting that year. They would also look for the latest trends (Keto, gluten-free, even CBD) and try to source those. Unlike Walmart, which was more a pack mentality at PLMA, the Costco folks split up and met back to report their findings. Given all of this, I’m not at all surprised about their success.
Building and maintaining multiple sub-brands is expensive. So investing more in a single brand keeps costs down – which is a very on-brand strategy for Costco. But the real smarts lie in three key areas:
Simplicity: one name, top quality, and a discounted price from brands, even when the brands are on sale. Shopping in a typical supermarket, you’ll find several levels of private label with a variety of names and the quality is inconsistent.
Costco has a keen focus on a strong value proposition of quality and price. They play the “long game” in their private label strategy. They built the product mix out over time, ensuring that the same value prop was consistent across items. They’ve developed a rock solid design, sourcing and packaging organization to bring the products to market. And now they enjoy the rewards — their customers have developed a strong affinity for the brand and are much more likely to try new Kirkland products around the store, because their experiences with the products they do know has been consistently good.
The good news for retailers who want to emulate this strategy is that there really aren’t any secrets. The bad news is there also aren’t any shortcuts. It takes hard work, lots of trial and error, and managements commitment to a long term strategy to make a world class private label strategy work. But the rewards are also great. Providing customers with brands and products that they love, and that they know they can’t get anywhere else. That’s the best customer loyalty strategy around.
As export director for Costco back in 1995 I had a front row seat observing and participating in the development of Kirkland Signature. Things got started when we began selling Coca-Cola in containers to Japan (at that time Coke’s most profitable market by far — a can of Coke cost $1 available in ubiquitous vending machines across the country). Coca-Cola did not take kindly to Costco leveraging buying power to then ship Coke to Japan, undercutting and disrupting their pricing structures. At Coke’s adamant requests we discontinued the shipments.
Jim Sinegal wanted an alternative solution: we would develop our own cola label and call it Simply Soda. The stipulations from CEO Sinegal were as outlined above: “any product we develop must be of equal or better quality compared to the name brand.” For soda that meant things like carbonation and fructose levels, etc. had to meet a high bar and our bottling partner Shasta Beverage was tasked with meeting the quality standards–and subsequent Costco product quality verification testing–for Simple Soda. Simple Soda went on to be a huge export success and we shipped it all over the world. It was thrilling when I was living in Japan as Costco’s first representative director to walk into a retail store and see Simply Soda (having too met very stringent Japanese quality standards) selling for half the price of the name brands.
Simply Soda was the first Costco private brand and later in 1995 “Kirkland Signature” was launched. Later on when I worked at Walmart and Sam’s Club and discussed Kirkland Signature with private brand executives they were always skeptical that Costco would adhere to such high quality standards for private brand development. “How to meet those standards and still materially differentiate in price?” Like many things that make Costco special, Jim Sinegal and team found a way.
The quality and availability of the brand across product lines at Costco and even beyond through other outlets are the main drivers for Costco’s success. Other retailers could learn from the model of focusing on developing one store brand that delivers quality across many product lines.
Costco came to Europe and saw what European retailers were doing with own-label products. The strength they gave the brand and the volumes they were achieving by being one of the first movers in the U.S. club store market with store brand gave them a head start. They learned that the own-label does not need to be the economy brand in their store, it can stand on its own merits and compete with major brands while still carrying a price advantage. They also understood that their own-label has to be good quality as it represents their business, though in their case not their brand. By working with major CPG manufacturers, both in manufacturing and in co-branding, they have given credibility to the Kirkland brand, which has really gained customer loyalty. The Costco shopper is a canny shopper. They are not wedded to brand just for show, which enables Kirkland to really compete and grow.
The biggest success factor for the Kirkland Signature brand can be described in two words – consistent quality. Based on repeated experiences, consumers know and trust the Kirkland brand. Unlike some private label brands where consumers expect a slightly lower quality for the lower price, Kirkland brand is considered a premium brand.
While many retailers used own-label as a cheap lower quality version of a national brand, Costco recognized the opportunity to use the Kirkland Signature brand as a differential advantage. Costco epitomizes the directive to “think like a brand and act like a retailer.”
My personal experience is that their brand has never let me down as a consumer. Every positive experience gives me additional confidence for their master brand across categories where I might not have yet tried their offerings.
A brand is a promise and every SKU that carries that brand is evidence of the truth or falseness of that promise. Kirkland doesn’t just offer good products they sell great products. I have worked for several manufacturers, including a couple of very recognizable national brands, who couldn’t match Kirkland’s pack standards, at least at a competitive enough price and still make money. If the quality isn’t there, and consistently there, the Kirkland brand just doesn’t go on the product. And there’s also a “halo effect.” If I like, say canned tuna, and try the Kirkland brand I discover an almost unbeatable product. That’s likely to make me feel more confident about buying a Kirkland shirt, for example. It was smart on their part to be so uncompromising on food items. If you trust the brand enough to eat it, it’s likely you’ll trust it enough to wear it, camp in it, or whatever.
It’s all about the consumer’s perception of value; that is, quality products at a fair price.
It starts with quality, quality, quality. Did I mention quality?
Private label is not a new idea, but the timing is right. Given supply chain issues and the continued struggle to stock the shelves with brand variety, it has never been more timely for retailers to own their own fate. Not only are there better margins/profitability, but owned brands (private label) create a point of unique destination. You can buy Heinz ketchup anywhere, but can only get Kirkland cashews at Costco. Target has built a universe of owned brands and Bed Bath & Beyond is following suit. Over time, the consumer starts to view owned brands as national brands without the expensive media costs and brand building. In this day and age of “in stock” vs “desired stock,” now is the time to strike. Keep in mind that the consumer will still demand quality, value and now social/sustainable genetics for products–so owned brands cannot cut corners for longevity of success.
Private label is all about trust. And Kirkland is a trustworthy brand with good quality, consistency, and great value.
Brand is a commitment or promise to a customer. Unlike other private label brands or “own brands” Costco had a consistent brand promise and never varied on delivery. Years and years of consistent product execution is the key here to building Kirkland or frankly any other brand in the market. Many other Retailers’ private label journeys wandered around between low price, “yellow label” promotional, natural or other factors and failed to delivery consistency of brand commitment over an extended period of time.
Obvious: Captive audience. Less obvious: Demand for generic, but high quality products. Even less obvious: Strong store culture. The demand for generic products has been on an uptrend since the inception of Amazon and online shopping. Customers are more comfortable purchasing generic brands, and per Coresight Research, Private Label brands are growing faster (13.7% vs 12.9%) than name brands.
Add to that the capabilities of Costco’s higher wages and better perks for employees, we have a virtuous cycle where customers are engaged in more positive in-store experiences purchasing products.
Retailers will be hard pressed to modify their models to map to Costco as Costco is still a club-based model, but enabling private label has been a strong trend across multiple retailers — e.g. Target, Meijer, Publix, Walgreens, CVS, Family Dollar, even Whole Foods.
Long time Costco member. I find it intriguing and somewhat confusing that Albertsons and its store brand is Signature, not so dissimilar to Kirkland Signature.
When buying private label, the shopper will always look at it with a discerning eye. Yet, when shopping in a club environment your price/value equation is heightened and likely more willing to try/buy with anticipation to critically evaluate how satisfying the item is vs. brand name goods.
I must admit I looked at the Kirkland 1.75 bottle of Vodka and wondered how bad or good or different can it be vs. the Belvedere right next to it. No surprise — Costco puts their name brand adjacent so you decide if 50% less can be balanced against historically satisfying martinis. If mixing with V-8 or OJ, how important is it? Not very much at all!
The obvious thought is that Kirkland is successful because Costco itself is successful. A less obvious thought perhaps is that relationship actually goes the other way around: Kirkland’s success accounts for a lot of Costco’s. Personally, I think it’s a
vicioussalubrious circle: the success of each supports the other.The lesson for other retailers is a consistent message and — of course — backing it up. Does that mean that stores like Safeway or Target or Macy’s, which carry a flood of private-label names, would be better off ditching them for a single moniker? In cases where the brand itself is well known, either because it was an acquisition or simply has had a long existence. Likely not; but in a case like the latter two, where much effort seems to go into creating clever titles, such effort might be better spent on enhancing the core identity.
When consumers think of the Kirkland brand, they think quality first, lower price second. That’s how you build brand loyalty and establish trust! Customers at Costco are often walking down the aisle looking or Kirkland brand products versus looking for a particular brand name. Part of the reason for that is that customers know Costco’s buying model — they don’t always have the same brand names in a product category. But they always have Kirkland! That consistency helps and the lack of consistency in other brands helps drive consumers to Kirkland. Of course, if that level of trust in the Kirkland brand hadn’t already been established from a position of quality, those consumers would either buy whatever band they can find, or they would have learned to shop elsewhere! We know from Costco’s success that’s not what happens, so maybe that’s all we need to know about the Kirkland brand!
I think Costco’s mission, vision, and finely tuned brand experience are the prominent factors behind Kirkland’s success. Costco and its members, including Kirkland, have always put efforts to understand their customers’ needs, ensure that their messaging aligns with that and constantly find ways to innovate their ecosystem. So with the help of Costco’s brand recognition, Kirkland will be able to retain and acquire more customers in the future.
Costco’s approach to Kirkland, I don’t think is any rocket science and retailers can easily apply it to their initiatives. Still, to break it down, Costco solely aims at finding the right products and providing value in customers’ brand engagements. Second, transparency is the key to building long-term relationships, trust, and ultimately loyalty. Costco assures high-quality service, products, and a consistent brand experience which has led their customers to have sort of blind faith in whatever it does.