Costco. A place so special to me that no words can truly express my deep love for this company. From the shopping carts whizzing past each other to the massive pallets of goods stacked perfectly upon each other, I love it all. Throughout my entire life, Costco has always been there for me and we’ve changed a lot since 2003, my birth year. Fast forward 17 years to 2020, I stand at a whopping 5 feet 8 and a half inches tall while Costco is the #14 company on Fortune 500 and has reported revenues of $141.6 billion. Frankly, I think our achievements are of similar magnitude and should both be applauded. However, I’ve recently been questioning our relationship and I’ve started to wonder how Costco became so successful as well as why I’m so fond of the brand.
Costco’s history started off in 1976 when Sol Price opened the first Price Club, a first in the warehouse store industry. In 1983, James Sinegal and Jeffrey H. Brotman opened the first Costco Warehouse in Seattle on September 15, 1983. In 1993, the parent company of Price Club merged with Costco to form PriceCostco. Both companies had similar business models allowing for a painless merger. Eventually, in 1997, the company adopted the name, “Costco Wholesale Corporation”, which still holds to this day. Fast forward to February 2020, Costco has 785 warehouses scattered across multiple countries: 546 in 46 different states, 100 in 9 Canadian Provinces, 39 in Mexico, 29 in the United Kingdom, 26 in Japan, 16 in South Korea, 13 in Taiwan, 11 in Australia, 2 in Spain, 1 in Iceland, 1 in France, and 1 in China.
Costco’s rapid growth and worldwide expansion is attributed to a plethora of factors, beginning with its unique business model. Costco utilizes a subscription business model where all members must purchase a membership card in order to shop. Competitors like Sam’s Club and BJ’s wholesale are also membership-only. Costco earns a lot of its revenue from these fees, and it helps compensate for the cheap prices they are known to offer. In addition, membership cards give shoppers a sense of being in a private club and makes them feel special. The two different tiers are Gold Star($60) and the Gold Star Executive($120). The difference between these 2 cards is that the latter offers a 2% cash back reward, up to $1000 back per year, and some other discounts in places like Costco travel or auto. If you’re an avid spender and find yourself at Costco multiple times a week like me, the Gold Star executive card will be your best friend. With a name like “Gold Star Executive,” you’ll feel like a powerful executive and part of some posh, private club, further incentivizing you to make the switch. The addition of a single word and some basic knowledge regarding psychology has allowed Costco to rake in wads of extra cash.
Although the yearly membership costs may seem intimidating, the low prices make up for it. Costco follows the principle of cost leadership, where it maintains the lowest prices in order to stay competitive. Other Fortune 500 Corporations like Walmart also follow such a principle. The idea is to maintain low prices on almost all goods or services offered on its store and website in order to entice the unsure shoppers. Costco is able to maintain such low prices by narrowing product diversity. Costco tends to sell only one or two brands of a particular item, usually they are either name brand or their own house brand Kirkland Signature. The limited product variety allows Costco to have fewer products to order, track, and display which reduces costs. Also, this principle gives Costco increased purchasing power. For instance, Costco will only sell one brand of toothpaste, and competitors like Colgate and Oral-B are dying to earn that coveted spot. Companies will decrease their prices drastically just so they can be the sole supplier to Costco which means Costco pays much less for these name brand products. Costco will then sell these products at low prices which translates to increased savings for the consumer and smaller profit margins. Costco isn’t afraid to abandon companies that aren’t willing to drop their prices. The food court used to serve Coca-Cola products; however, Coca-Cola wouldn’t reduce their prices so Costco dumped them and opted for Pepsi products instead. While a lot of the products are name brand, Costco also has their own brand, Kirkland Signature. The name stems from Kirkland, Washington, where their old headquarters were located. But don’t be deceived, despite the fact that they aren’t stamped with a brand name, Kirkland products are of extreme quality and some of them are actually made by the original name brands themselves. For instance, the Kirkland batteries are actually made by battery giant Duracell. Another myth is that the Kirkland Signature Vodka is made by Grey Goose. Hosting parties and getting drunk with a 1.75L bottle of Kirkland Vodka will set you back only $20 dollars while the same bottle of Grey Goose will cost $60 dollars or triple the price. Many Vodka connoisseurs have rated the tastes as very similar and some people online have said that Grey Goose produces Kirkland Vodka in a building that is adjacent to their main factory. Personally, I would try both of them to see if there is a distinct difference but there’s something called the 1984 National Minimum Drinking Age Act. Since Kirkland products are much cheaper to produce, the profit margins are much higher and helps make up for the low profit margins stemming from the name brand products.
Not only are the products at Costco cheap, the food is also very economically priced. I’m talking about the legendary food court that I always head to after an hour of shopping. It’s a staple at Costco, and it’s crucial for a good Costco trip. Their menu isn’t too expansive and they’re most well known for their beef hot dogs, chicken bakes, and pizzas. All the other food items follow the same concept of being cheap and delicious. Their signature $1.50 hot dog is so good that it’ll put those ballpark hotdogs to shame. Also, Costco is the 15th largest pizza chain in America, beating out companies like California Pizza Kitchen. International Costcos will have slightly different menu options that suit local tastes. Having been to Canada, I know that their Costcos serve fries, chicken tenders, cappuccino, café lattes and poutine. On the other side of the world, asian countries feature more oriental dishes including fried rice and seafood pizzas.
Costco has a specific layout to display their thousands of products. Rows and rows of orange green pallet racks are found throughout the store and stacked on top of them are hundreds of pallets, tightly stretch wrapped and perfectly positioned. Now the rows are typically labeled with a bright red number rather than a sign that displays the contents in a certain row. At first, this seems confusing to shoppers; however, there is very good reasoning behind this. Costco wants you to wander around these rows as you search for your desired item. As you browse around the different sections, there might be a new item that catches your eye, and you might be inclined to purchase such an item which further boosts Costco’s sales. Frankly, I’ve fallen to this trick a countless number of times. For instance, I was all the way at the back of the store in the meat department and I needed to get some cereal which is located in the front, near the check out counters. As I made my way down there, I noticed a pack of red bull on sale and it magically appeared in my cart just seconds later. Barely making it down two more aisles, I noticed a massive box of assorted chips and it too quickly made its way onto my cart. My point is that every time a shopper walks through the store to pick up an item, there is bound to be something that catches their eye whether it is an on sale item, a limited product, or a newly introduced commodity. Additionally, I enjoy browsing the aisles and getting surprised by what I stumble upon. I get a certain thrill when anticipating a new product lurking around in the endless aisles of Costco. To most, shopping at Costco seems like a tiresome chore, but for me, it’s a game of hide and seek where the products are hiding and I’m seeking. Now, there are a certain group of people that like to dash in and dash out as quickly as possible which voids them of enjoying such an experience. Most people call them efficient shoppers; I call them party poopers.
With all the products being bought, many are also returned. The return policy at Costco is very lenient so customers are at ease when purchasing a new product. Costco, for the most part, provides refunds for all items that the customer isn’t satisfied with. Some people abuse this system by returning decades old inventory, but Costco wants to keep its customers happy even if it means losing money. Keeping customers happy ensures that they keep coming back and don’t head to competitor stores like Sam’s Club.
Finally, the workers further complement the wonderful environment of Costco. Generally, the workers are extremely friendly and willing to help you while exceeding expectations. Although the old grannies that run the food carts aren’t so charming. If they don’t see your parents, they’ll constantly nag kids about having allergies for simple items like water and will throw a temper tantrum if you don’t reply. Now, I understand Costco values the safety of its younger shoppers, but this is unnecessary. Generally, children are very aware of their life threatening allergies and wouldn’t dare go anywhere near these deadly foods. The workers need to understand that the kids are very aware of their allergies. Additionally, it disincentives kids from coming to get food as they’ll be barraged with a flood of questions, and many kids aren’t willing to respond. When I was smaller, I would circumvent this system by dining and dashing. I would run around the store, scoping out the delicious morsels of food I wanted to shove into my mouth before I pounced. I would wait for the exact moment the worker wasn’t looking or talking to a patron and I would casually stroll by and swipe the intended snack and sprint off laughing because I had just avoided being berated by a handful of annoying questions. After years of heading to my local Costco(19001 N 27th Ave, Phoenix, AZ), I have developed a list of the workers that are extremely aggressive and rude and the others that are lax and barely care about kids taking food. For entertainment purposes, I would purposely dine and dash on the workers that had attitude issues. I don’t know what was so appealing about my little game but it did make every Costco trip more enjoyable. I honestly think the policy is a bit silly as I’m pretty sure most kids know their allergies. They don’t need parental consent for everything. I wish the workers would just tell us the ingredients and then let the children reflect on if they have such a food allergy. It would be short, simple, and sweet.
As I near the end of my rant regarding Costco, I think I’ve justified my love for this brand and explained why it has become the warehouse behemoth that dominates the shopping industry. On a side note, one of the workers made me an official Costco badge bearing the name(Jonathan The Greatest) and it also states that I’ve been an employee since 2013 so I guess you could say I’m slightly biased towards Costco. As Costco and I age into the future, Costco will continue to earn billions of dollars while I plan to be sipping on gallons of their oh so delicious vodka, legally.
