Why has Kirkland Signature been so successful?

Discussion
Source: costco.com
Feb 15, 2022

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.”

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?

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Braintrust
"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."

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33 Comments on "Why has Kirkland Signature been so successful?"


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Mark Ryski
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.

Bob Amster
BrainTrust

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.

Michael La Kier
BrainTrust

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.

Dr. Stephen Needel
BrainTrust

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.

Ben Ball
Guest

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.

Katie Thomas
BrainTrust

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.

Zel Bianco
BrainTrust

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.

Dave Wendland
BrainTrust

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!

Jeff Sward
BrainTrust

Product. Quality. Value. Consistency. Every single product, every single time. Adding up to brand promise delivered. Every single time.

Suresh Chaganti
BrainTrust

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.

Bob Amster
BrainTrust

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.

Melissa Minkow
BrainTrust

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.

Jennifer Bartashus
BrainTrust

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.

Ron Margulis
BrainTrust

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.

Nicola Kinsella
BrainTrust

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:

  • A focus on quality: Costco has worked closely with name brand manufacturers to ensure their products are of a higher quality than typical store brands.
  • Co-branding: Periodic co-branding of Kirkland Signature products with name brands over the years has helped elevate the Kirkland Signature brand by association, and built consumer trust in the products.
  • Selling in non-Costco channels: How do you make a private label brand feel like it’s not private label? By selling it in channels outside your own. Kirkland Signature products have been sold through Amazon, Marshalls, TJ Maxx, and even Walmart’s marketplace. To consumers, this makes them feel less like a house brand.
Al McClain
Staff

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.

Gary Sankary
BrainTrust
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… Read more »
Michael Day
BrainTrust
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… Read more »
Kathleen Fischer
BrainTrust

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.

Andrew Blatherwick
BrainTrust

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.

David Naumann
BrainTrust

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.

Richard J. George, Ph.D.
BrainTrust

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.”

Joel Rubinson
BrainTrust

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.

Ryan Mathews
BrainTrust

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.