Are Big Brands Getting Bruised By Costco's In House Competition?

Big brand consumer products companies are facing growing competition from in-house retailer brands. Costco’s Kirkland is squeezing profits from customers that would otherwise go to the brand producers themselves. Sarah Nassauer writes:

Kirkland Signature, Costco’s store brand, is challenging manufacturers hoping to earn or retain a coveted spot at the warehouse retailer. Since 1995, Costco has used its Kirkland products to attract shoppers, building a reputation for quality and low prices on milk, toilet paper, men’s shirts and golf balls bearing the unassuming red logo. About a quarter of Costco’s $118.7 billion in annual sales come from Kirkland Signature products, and the percentage is growing, company executives say.

LaunchPad Inc. founder Jeremy Smith, who works with food brands seeking Costco shelf space, tells clients: “Assume a ‘KS’ version of your product will come into the market.” When that happens, he said, savvy manufacturers offer Costco new versions of their product, tweak packaging to highlight what’s better about their brand or spend more on marketing—all costs Costco doesn’t incur with Kirkland.

At Costco, negotiating for a spot in stores is a complex dance. Brands fight for space at the retailer’s cavernous warehouses, which on average carry only 3,800 products. The typical supercenter sells over 100,000. Adding to the pressure, Costco often introduces a new Kirkland product when its buyers or executives believe a brand isn’t selling at the lowest possible price.

Today, Costco’s nut aisle is almost entirely made up of Kirkland Signature products, including single-serving packages sold in boxes of 30, bags of almonds and nut clusters. Over a decade ago, what was formerly called Kraft Foods lost spots for its Back to Nature fruit-and-nut mix single-serving packages and several varieties of Planters nuts, said a person familiar with the change.