What we can learn from Costco
Costco’s 2021 UK sales were £3.6bn, according to IGD. Not all these sales are in categories that you’d normally find in a grocery store, but it is still surprising how little they are talked about in our industry. A Retailer with sales about half the size of Waitrose is rarely discussed.
Maybe it’s because they have only 29 locations, often tucked away out of town. Maybe it’s the lack of marketing media. Whatever, they are flying under the radar. But what can we learn from them?
First, Costco show how to signal and deliver a quality fresh food experience. Much of their fresh food is prepared on site, with the prep areas visible around the exteriors of the food department (Bakery, Butchery and Chilled Convenience). These prep areas and the food section generally are fastidiously clean and tidy. The food is well presented, mainly in transparent packs. The product is the hero and little branding gets in the way. Meat, Fish, Prepared Meals and Celebration Cakes are impressive. There is sampling throughout the department, with colleagues talking about provenance and how and when products can be stored and used by shoppers. If you were expecting cheap and nasty, think again. This is quality.
Second, they have the confidence to do their own thing with ranging. The SKU count is small, but what they do, they do well. Whole Fish, for example, is great – sides of salmon, Dover Sole, huge shellfish. Red Meat is a carnivore’s dream, with outrageous Tomahawk steaks and other rare cuts. Asian Mangoes are given space and profile (the deliciously sweet varieties so ineffectively sold in most supermarkets). Huge Tex-Mex food platters attract the eye. Rather than just sell what everyone else sells, Costco sell things you won’t find elsewhere. When did other Retailers lose focus on this?
Third, Costco go large with pack size. There is a spirit of generosity – the opposite to shrinkflation. Take Sausages. Think about what a nice big sausage for the BBQ should be, then work out what is a generous pack size. Then offer all this at the best price you can manage. The item price may be relatively high. But Costco seem to be saying “if we’re going to do it, let’s do it properly”.
It’s interesting that shoppers seem to be happy buying these very large pack sizes. It’s not just huge households. Maybe Costco is a destination for parties and BBQs. Maybe people with enough freezer space are prepared to do a bit of portioning themselves. Supermarkets are doing more big pack sizes recently (e.g. 1.6kg packs of fresh chicken fillet). Perhaps there is more that can be done.
So Costco are impressive operators. They give anyone else a run for their money in fresh food and are market leading in some respects. If they can find more sites in the right places, they will grow. But even if that doesn’t happen, there is still plenty to learn from them.
Jeremy Garlick is a Partner of Insight Traction, consulting with FMCG and Retail companies. He was formerly Head of Insight at Sainsbury’s, Waitrose and Premier Foods.