Through a special arrangement, presented here for discussion is a summary of a current article from Frozen & Dairy Buyer magazine.
Beyond low margins, limited assortment also plays an important role in Costco's success. While all the leading club chains expanded their assortments during the past five years, Costco's grew the least and its SKU count remains by far the skimpiest.
According to Ginny Valkenburgh, SVP, Kantar Retail, Costco's total of about 3,950 SKUs pales in comparison to Sam's Club's 5,250 and B.J.'s 6,890.
"Customers think they want more variety, but too many choices actually makes shopping more difficult," she explains. Its frozen departments carry an average of just 105 SKUs vs. 197 at Sam's and 275 at BJ's; its dairy departments, just 69 vs. 97 at Sam's and 148 at BJ's, according to Warehouse Club Focus.
The low count helps prevent stock-outs.
How does Costco determine which items warrant that kind of space? According to Jim Degen, president of J.M. Degen & Co., "Every item competes with every other item in the department," not just every other item in its particular category. So, if refrigerated biscuit dough doesn't sell as well as, say, cream cheese, Costco won't carry it.
"Costco only offers what sells," continues Mr. Degen, citing the old 80/20 rule.
Only in Costco's case, it doesn't bother with the other 80 percent.
During our visit to the Costco store in Bucks County, PA, we found only one SKU of vanilla ice cream, under the Kirkland Signature label. In fact, the entire ice cream category had just eight SKUs; the frozen breakfast section, six; and the frozen vegetable section, six. Even the yogurt section, expanded in recent years, offered only 10 SKUs.
However, we counted 10 SKUs of frozen appetizers (bacon wrapped dates, cocktail franks, etc.) and almost as many frozen snacks (mini tacos, bagel bites, etc.) — no surprise given the party planning in the club channel. But Costco also offers a wide assortment of frozen seafood — we counted a whopping 26 SKUs — and a fair amount of frozen chicken, frozen ground meat and frozen Asian foods.
Although Costco works closely with its partners to create successful products, "It's also quick to eliminate a rotational item if it doesn't immediately hit a certain threshold," says one manufacturer. It also has a brief 13-week commitment to new items.
Costco's willingness to pull the plug on items that aren't performing, combined with its commitment to new products, means that, although SKU counts remain fairly stable, individual items are frequently switched out. This helps create the "treasure hunt" atmosphere for which Costco has become known.
Many customers love it ("you never know what you might find...") but "it can also get a little irritating when a product you like is suddenly discontinued," says Paula Rosenblum, managing partner at Retail Systems Research.