Monday, January 9, 2017

Some Thoughts About Costco

  • Some of the hoped-for customer savings are illusory. For two reasons - first, buying excessive quantities ends up being wasteful. If you buy three pounds of ground coffee or 1.5L of olive oil, even if it was good to begin with it's no longer fresh by the time you use it. (Unless you're feeding an army.)
  • Second reason, they are brilliant at finding products that their upper middle class customer will impulse buy. You go there to save $10 and end up buying a $300 cart full of stuff you didn't need.
  • It's for people with no taste. There's no selection. Oh, "toothpaste is toothpaste", "coffee is coffee", X is X. Again, only if you have no taste.
  • The meat is excellent quality. If you go there solely to buy a brisket or a prime rib, you have my blessing, as long as you don't buy two gallons of olive oil.
  • Some good threads on COST on the Motley Fool boards [1,2]. I'll post more in the comments.
  • Previously: Costco and the Three Tier Liquor Distribution System


CP said...

Think about that for a minute--Costco's entire profit was equal to what the average retailer loses to thiefs! That's not a bad moat. Most retailers let anybody walk in the door and don't bother to check receipts at the exits. And I can't think of any other retailers that sell clothes but have no dressing rooms (which is where a high percentage of shoplifters perpetrate their mischief). 180 basis points of margin is huge given how competitive the retail industry has become. It is yet another example of one of the enduring competitive advantages that the warehouse club membership system has over the average retailer. And another reason why warehouse clubs are going to keep gaining share from other retailers.

Viennacapitalist said...

Interesting thoughts on the retail industry.Your observations on olive oil are not correct.
Just a minor point,but maybe you find it interesting:
- real olive oil(harvested in autumn) is good quality for about two years. Given that it is a juice, it is obviously best when fresh, i.e. the first six months. Nevertheless, due to the harvesting cycle you do have to wait a full year anyways.
- oil is best stored in large quantities, since you want to minimize surface/volume in order to have as little air contact as possible. Same for temperature swings.
- which is why I personally get all my oil delivered in autumn in bulk from Istria (Croatia) as soon as the harvest is in.
That's for real olive oil (minimum price 15 Eur/Litre), while I assume that most "olive oil" sold at Costco is a refined and coloured mix of different vegetable oils (That's what you would find in your average Supermarket in Europe at least)

Greg Merrill said...

Have kids and you'll find yourself going there quite a bit.
My two young children keep me going there at least once a week to stock up on the basics and yes, occasionally buy some olive oil.

whydibuy said...

Costco has the Kirkland brand golf balls that are tested to be the equivalent of the Titleist Pro V1. Except the Kirkland brand is 29.00 for two doz while the Titleist are 60.00 per doz. And guys love them. They are perpetually sold out.
And Costco has good deals on some big ticket items too. I have a group of golf friends that pass around the membership as people need items to buy.

CP said...

Costco is a lean company. The company’s spending on basic overhead—the selling, general, and administrative category—is only 10% of revenues, compared, for example, with about 20% at Walmart.

Nate Tobik said...

We buy a lot of bulk things at Costco, and the savings over piecemeal purchases at Aldi, or the local grocery are substantial.

But the point is well taken on buying extras. It's hard to avoid picking up a shirt for $12 and other similar impulse items.

We purchase olive oil there along with coffee (keep it in the freezer and it stays fresh, oil doesn't evaporate) and other bulk food items.

They have honed their upper middle class impulse purchase product selection perfectly.