How Kirkland Signature Powers Costco's Success | Hacker News Reader

How Kirkland Signature Powers Costco's Success

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What’s missing in this discussion is how much marketing and ad dollars figure into pricing of goods especially among goods that are hard to differentiate. Instead of thinking how much cheaper Kirkland (and other private labels) is compared to branded goods, we should really think about the economic excess of marketing in general.

Here's my pet conspiracy theory: cigarette companies in the US colluded to get themselves banned from marketing, thereby saving themselves tons of money. Some research suggests marketing mostly just shifts spending from one brand to another rather than from one product category to another, so the whole industry is better off not marketing but without a government enforcing that, any individual company could defect from the pact. And marketing was a way for cigarette companies to subsidize things like public transportation and was arguably their only positive contribution to society apart from taxes.

In reality, I don't think this adds up (why haven't they done the same in the EU and other jurisdictions? didn't they also have to pay massive fines? etc.).

That's a fascinating theory that I'll be mulling about for a while.

My immediate thought is that smoking overall is falling and falling, so maybe advertising does more than shift brand loyalty of existing customers.

Semi-related: I was pretty convinced that smoking was at maybe 5% in Canada based on my observation that almost nobody where I've worked and gone to school smoked. Turns out it's closer to 25%, which was shocking. I came to realise that smoking must be very very concentrated among specific demographics as to insulate me from it. Got me thinking about how my perception of advertising for smoking may also be very very off.

My immediate thought is that smoking overall is falling and falling, so maybe advertising does more than shift brand loyalty of existing customers.

Smoking in the United States and other developed nations is declining, but it’s rising worldwide. Tobacco companies simply shifted their focus to poorer, less educated nations and they’re taking in the money.

https://en.m.wikipedia.org/wiki/List_of_countries_by_cigaret...

While smoking rates have leveled off or declined in developed nations, especially among men, in developing nations tobacco consumption continues to rise.

But that seems to support the correlation between marketing spend and smoking, since marketing is banned in the US but legal elsewhere right?

I'd imagine a factor in the rising rates in developing nations is the due to the fact that 40%+ of global tobacco sales come from state owned firms. China's state owned China Tobacco company is the world's largest tobacco company and earns profits in excess of $16 Billion annually. Very little incentive to cut smoking rates when smoking is contributing billions to state coffers.

That’s a very good point, but of course the government is going to have to pay in some fashion for the health impacts of smoking. It’s sort of a weird situation for a government to be in, making profit from tobacco and shouldering the inevitable externalities. I don’t know the specifics of how that breaks down though, or if it’s still a net profit center.

Of course it may not matter in the sense that cronyism could ensure the burdens are placed on one group, and the benefits concentrated in another. I don’t know enough about China though, to say more.

People in Quebec smoke much more than in Ontario.

I had a similar reaction when I looked at the smoking rates for Canada after reading this WashPo piece: https://www.washingtonpost.com/national/americas-new-tobacco...

Marketing also increases market size, and creates more customer base size variance between competitors (bigger risks, bigger rewards).

A small correction: Costco is now headquartered in Issaquah, but they started out in the city of Kirkland. They moved to Issaquah (a 20 minute drive) in 1994, about the time the Kirkland brand was created

I think the first Costco was located south of downtown Seattle, south of the stadiums? Or is it the one that is actually in Kirkland relatively close to the 405?

South of downtown was the first one, yes. See "The History of Costco" at: https://www.costco.com/about.html

I love Kirkland branded stuff. The best thing you have to try is their Kirkland branded hard liquor particularly the vodka. Affordable and smooth! Their wine is good to me, but most wine connoisseur disagree.

> Their wine is good to me, but most wine connoisseur disagree.

Unless you have a connoisseur as guest and want to impress them, “good to you” is the more important qualifier. There’s probably a lower threshold to wine quality that you shouldn’t go under (additives that are unhealthy and such), but above that, there’s little point in buying wine that connoisseurs recommend and you dislike.

Totally agree. Kirkland wine is good because it actually tastes like real wine but is the same price as grape flavored alcohol water.

There's a rumor that their bourbon is actually sourced from some quality stock.

I have their 7 year Bourbon and it's super tasty. I would say its pretty close to Bulliet.

Hearsay from a winery in Cali I recently visited:

I liked the wine I was tasting and the guy pouring mentioned that Costco has purchased the entire stock of the previous year's vintage which had won some international competition.

It was Cline Cellars. Not a super luxe brand, but also not a cheesy one.

Their Merlot and Cabernet is super tasty to me! The only one I drank that gave me headache was their Malbec one.

I believe a number of the Kirkland products are just rebrands. For example, their dog food, which is highly rated, is actually manufactured by Diamond.

https://www.certapet.com/kirkland-dog-food/

And it isn’t necessarily the same product everywhere. Canadian Kirkland shampoo is different than the US.

I’ve heard toilet paper is regional.

Probably a lot of other products, and I somehow think their dog food might be.

Yeah to me Kirkland on the label just means that Costco had a hand in selecting and vetting the product, and since they typically focus on carrying one kind of a certain product, I can assume the quality standards are high enough.

I don't care who actually made it, as long as it does what it says it does

Most store brands are made by contract manufacturers to the stores specifactions. It’s rare for a store to directly manufacture their own goods in the food industry. This is because a store only needs a given type of facility for a few days a month, making it uneconomical to operate it themselves.

That's starting to change a little.

https://www.eater.com/2018/12/11/18136019/costco-rotisserie-...

"At the center of the move is the company’s $4.99 rotisserie chicken. In 2014, Costco reported selling 78 million of these processed, four-pound birds a year. In order to guarantee a steady supply and maintain the price, Costco fixed its eye on Nebraska as the best place to start raising and processing its own supply of chickens, and “break free of the monopoly” held by companies such as Tyson and Pilgrim’s Pride, much like it did for sausage and hotdogs with its Kirkland plant in Tracy, California."

Wonder how the extreme flooding in NE is affecting that.

Not quite sure what you mean by "rebrand" but this doesn't necessarily mean it's the same as another product but with a Kirkland label.

I think all K-Sig products are rebrands: the coffee beans are Starbucks (see the bag), the beers and liquors are brewed/distilled by one of the big three brewers (see the bottles)... I was about to type more but found a thorough Quora explanation: https://www.quora.com/Is-Costcos-Kirkland-Signature-brand-re...

The CNN article sort of side steps the issue, but does consistently call Kirklnad Signature a “brand” as opposed to “product line” or the like.

> I believe a number of the Kirkland products are just rebrands.

Store brand products are almost invariably made by manufacturers that have their own, non-store brands. Retailers aren't investing in buying production facilities for every kind of product they want a store brand for, they are paying manufacturers in the industry to make a store brand, which may or may not be distinct (aside from packaging) from products sold under non-store brands.

I noticed that there is a type of cookie I see at multiple grocery stores, that appears exactly the same in terms of the photos and ingredients, and after having bought the walmart variation and the variation at another local supermarket which seemed exactly the same, I saw it at a third. But it turned out there was something wrong with it there. I don't know whether it was the same factory making it to a cheaper spec, it was a bad day and they screwed it up, or there are multiple unrelated competitors making almost identical things.

There is no question about it. Costco outright says they are.

They buy enough quantity, put there own label on it.

But not the rotisserie chicken.

I see a lot of up and coming angst from politicians about how Amazon the platform, and Amazon the product(s) should be broken up due to unfair advantage over other retailers trying to sell on the AMZN platform.

Is AMZN’s framework similar and does it not mimic a lot of massive sales platforms from Costco to Walmart, and even to smaller grocery stores who share their shelves (the platform) with products often times mixed with self branded products?

AMZN is GLOBAL, Walmart++ need to buy real estate, get licenses etc etc to open new stores. Amazon is a click away.

But yeah, Walmart does the same as Costco: want to keep selling to us? Lower the prices. If they don't sell to Walmart they go bankrupt in x years, if they sell at a loss, they go bankrupt a little later. https://www.fastcompany.com/47593/wal-mart-you-dont-know

Walmart is also one of the largest ecommerce players.

The key difference is that Amazon is selling its infinitely deep platform to third parties. It is those third parties that bear all the risk of developing and marketing a product. Costco and Wal-Mart buyers and merchandisers still need to take the risk of choosing what limited inventory to stock on the shelf and commit resources to making it happen. Amazon also invites all competitors in a product segment to compete with each other. Using the information gathered from the sales, reviews, page views, demographics, and who knows what else, they can create the perfect Amazon basics version of that product pretty much on the fly with pretty low commitment.

And Costco takes primary responsibility for all its products, even if relabeled, and has a generous return policy.

Do you really think Costco eats the cost? They force the manufacturer to take it back as a condition of doing business.

Everything you’ve claimed about Amazon applies to traditional retailers.

He's referring to Amazon marketplace. Providing a platform for third parties isn't done by traditional retailers.

Why not? When Costco offers its shelf space to non-Costco brands, how is it any different from what Amazon does?

Because Costco are taking a risk. You can only have X different widgets on a shelf, its a limited resource so you can't just let every brand in to sell their wares and take a cut. This in turn means Costco has to take on other risks. They're liable for fakes, they're liable if something doesn't sell (I assume Costco probably does sale or return for new suppliers? But there are limits to this). They're doing the fulfilled by Amazon role as well.

Its the difference between a Farmers Market and wholefoods. You as a consumer probably have nothing to do with the market organisers, and they don't have any particular responsibility toward you.

Sure it is. Stores rent out space on shelves to manufacturers all the time. The manufacturer even stocks the shelf.

And the store gets to pay them only 2 to 3 months later on top of all of that.

Even when stores buy stuff and stock it themselves, they don't take any risk on it. Unsold stuff gets returned, and they only pay once the merchandise is sold.

I was thinking the exact same thing the other day when I was listening to NPRs Antitrust series. The talk about this for a bit but the main difference is that Amazon pitches itself as a platform/portal. Essentially any company can it as medium to sell things. It's anti consumer since they are now selling their own brand while promoting it on this so called portal. Costco on the other hand is a whole seller. Companies work with contracts and agreements with Costco to arrange for the selling goods. On top if that, Costco does not explcity promote their goods. If you look at salts, they are equally placed for you to select and the customer can decide themselves.

What's confusing is that the Kirkland Signature brand is also put on items that are not own-brand, e.g. the big Jelly Bely canisters have dual "Kirkland Signature" and "Jelly Belly" branding.

My guess is that Jelly Belly has very strong brand recognition, so it made sense to keep them on the label. A collab if you will:

Kirkland Signature x Jelly Belly

GNU/Kirkland

Kirkland x Einstein bagels

Kirkland Ito En green tea is delicious. These are great brand partnerships. Reputable products get sold at wholesale volumes.

If it doesn't say jelly belly, i am not but buying it.

That's how inferior I see every other manufacturer.

Same goes for their coffee. If you read the package it says something about Starbucks.

Without Kirkland, we would probably not be Costco members. From boxers, to belts, to shorts, to soap, to makeup removal towelettes, to white tshirts, to coffee - my family buys the stuff because we know it's good quality and not overcharging us.

My parents love to make fun because one day without realizing I was wearing shoes, socks, shorts, t-shirt and belt; all kirkland.

Never seen a brand like it and they don't do marketing whatsoever. It's pretty crazy!

Costco is great if you know what to get...meaning there's a lot of amazing deals next to things that are priced no better than anywhere else from my experience...

Someone told me the product with best margin that Costco sells is ... Kirkland toilet paper.

They drove down the cost to absolute minimum simply by opening their own factory.

And it’s high quality TP, getting a lot of good reviews and lauded by Wirecutter etc online. I keep a roll on the spool for after my bidet does the real work.

"best margins" suggests highest profit as percentages of retail price right?

That sounds wrong. Toilet paper isn't a traditionally high margin thing, and I doubt they'd be able to wring out much more margin by buying the factory, or else everyone would do it. High margin products traditionally are either the luxury products, low volume products, or convenient/convenience products (chocolates by the till, sandwiches to go).

Now its possible that toilet roll is their most profitable product in absolute terms. Everyone needs toilet roll so they probably sell a lot.

I still buy the Scott brand. It’s cheaper than Kirkland.

Firefox on Android asked permission to record audio and video when I visited that article. Seems pretty suspect.

I've noticed the same and posted an Ask HN about it: https://news.ycombinator.com/item?id=19476673

You could text replace Kirkland Signature with Amazon Basics in this article and it's the same story.

Housewares are commodities. In most cases brands mean a whole lot of nothing until you get up into the bespoke option price point (and lots of things just don't have that at all).

I had a conversation with Amazon manager two days ago, exactly about AmazonBasics and how unfair it is to competitor vendors.

And his answers was "Our vision is that lower price is good for customer".

To be honest, I don't buy it.

Perceived lower prices is good for Amazon.com.

If customers think amazon.com has great value, they will buy more at amazon.com without thinking which allows them to sell their marketplace to vendors because if you're selling something you want to be where the buyers are.

If Amazon.com can convert those merchants to use Amazon.com ware houses and prime shipping, it can help create a self-sustaining ecosystem (sorry I hate this word as well but I can't think of a better one).

I lost faith in Amazon when I heard a presentation about building an automated price matching (increasing) system to "prevent leaving money on the table" by charging lower prices than competitors when Amazon already had the top search result.

>> Perceived lower prices is good for Amazon.com.

Exactly. For Amazon.

I definitely agree with your point, but I think there's a small distinction to be made that I see. In my experience, Kirkland Signature products have generally been rebrands or slightly modified versions of quality products by trustworthy brands that cost more in their OEM packaging. This is perhaps true with many Amazon Basics items, but it doesn't seem as consistent as it does with Kirkland Signature's lineup. I would feel comfortable buying a KS product and assuming it is of good quality, even without Costco's notably flexible return and refund policy as a backup.

I wonder if that’s as much to do with the nature of the products as the corporate strategy. A large proportion of Kirkland products are foods, while that makes up a tiny proportion of Amazon products.

Supermarkets have had No Frills brands forever but tended to be inferior (bottom of barrel beer, cling wrap that doesn’t cling, salt that clumps). Kirkland departs from that.

What is a little surprising is thd success despite the uninspiring design (unlike While Foods which prettifies it’s own line with modern color schemes, design and logos).

Well, that harkens back to when generic brands were big in the 1970s, they were intentionally extremely plain to get across the point that it's no-frills.

http://historysdumpster.blogspot.com/2012/08/generic-product...

"The idea behind them was by eliminating the cost for logos, descriptive copy, and photos/illustrations on the packaging, the savings could be passed on to consumers. Even though much of these were stock images anyway and in reality bore little extra cost in the actual manufacturing process."

I think it's the same psychology at work.

“despite the uninspiring design”

It just shows that all the focus on design is not needed if you produce quality products over a long time. Once you have a reputation there is no need for constant “modern” redesign. Just keep the quality up.

It’s nowhere near as simple as that. Store brand products have one special, massive advantage over non-store products. They don’t need to fight for shelf space - they are guaranteed it. As a result they don’t need to market heavily because they will automatically get the exposure they need. Try doing that with a non-store brand. Chances are you will go bust before you get the opportunity to build a reutation for quality.

The other issue here is that an overtly ‘basic’ brand name and trade dress is a form of marketing. Some people will go out of their way to seek out such products, for them its useful product differentiation and in fact it works exactly the same way as brand differentiation. It’s not actually any cheaper either, it isn’t any less expensive to print a generic label as a fancy one. The guveaway is packaging quality, it’s usualy comparable on store brand goods because in reality people aren’t looking to trade off quality for price. They’re trying to get quality products cheaper. It’s all just signaling.

I mean one difference is that at Costco you sometimes only have Kirkland products in a certain category, while on Amazon the Basics line might be among the cheapest but there will always be competitors or other options to choose from.

I have far more trust in Kirkland Signature products, and Costco in general, than Amazon Basics. Costco has a long history of treating customers and it’s employees well, and they seem less shady to me.

Amazon seems to be more interested in creating more "sleeper" brands than adding products to AmazonBasics. All these are Amazon private label: https://www.amazon.com/b?ie=UTF8&node=17602470011

Amazon Basics aren't really quality, they are like the Great Value walmart brand of the online marketplace.

> You could text replace Kirkland Signature with Amazon Basics in this article and it's the same story.

Not realy. AmazonBasics has not been of good quality in my experiences. For example I have a travel case for cords and stuff I got less than a year ago that's fraying. Several other things have started to degrade rather quickly.

I would slightly adjust my statement to say “amazon basics and amazon recommends” which are typically presented right next to each other but aren’t quite the same thing.

Amazon recommends is definitely not highly trustworthy. Hard to quantify, but too often those products have bad FakeSpot ratings. I'm also surprised at how many Amazon Basics product seem to have signs of review manipulation.

This is off-topic.

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