How to sell your products to
Costco
The crucial decisions that need to be made before doing
business with Costco!
Making the decision to do business with one of the countries most
successful retailers is not one of those quick brainstorm ideas
hatched over coffee and a bagel at your local Starbucks. I am sure
you have lain awake at night dreaming of your product prominently
displayed at Costco with thousands of members clamoring around to
grab a hold of the last item before they are all gone. No doubt you
have rehearsed your response to the frantic phone call from Costco
begging for more product, offering anything to just get one more
shipment. Cool and unbothered you pause before letting them know
you will see what you can do, while at the same time, asking for
better terms.
Fortunately this has happened and could happen to you. You may
never find yourself invited over to Jim Sinegal’s house for holiday
dinner, but that doesn’t mean you will never be successful selling
your products to Costco if you are prepared.
Thousands of companies just like yours have made it into Costco and
sold their products successfully for years. What makes the difference
between companies that are in and the one’s that are out? The
successful companies that have made it into Costco had the following
things in common:
1. They were prepared: They did their homework and had a plan.
They knew what they were getting themselves into and had already
made the necessary adjustments for success.
2. They hired a company or individual who had expertise in selling
Costco to fill in the gaps in their plan and advise them during the
process.
3. They understood Costco’s business model and that Costco would not
bend their rules even for them.
4. They were in the right place, at the right time with the right item.
Will your product be the next big item at Costco? Only time and
preparation will tell. To get you started I have outlined the first 11
steps which are crucial to preparing for a meeting with Costco.
I. Product Selection:
a. Determine if a single product or multiple products will be offered. At
times, in order to create the value needed to meet Costco’s
standards, you may have to bundle products together. Bundling
products can also help with your distribution network as you have
created a different and unique item number.
II. Pricing:
a. Research distribution network to determine lowest sell prices in the
market on the products you would like to offer Costco.
b. Ensure you have a handle on all prices and products being offered
for sale. If you don’t you can be sure Costco will. They will do their
research which means you need to as well.
c. Create possible pricing structure taking into account prices
currently being offered.
III. Distribution affect:
a. Determine how selling product to Costco at reduced pricing or
added value will affect your current distribution network.
Distributors and dealers can sometimes become difficult if they
believe you are undercutting them by offering the same products to
Costco.
IV. Packaging:
a. Determine what type of packaging you will be offering to Costco.
Costco is very specific on their packaging requirements. Generally
they require a single display pallet.
b. Price out packaging and graphics. Note: Be sure to include the
cost of packaging in your financials.
V. Logistics:
a. Take a look at your current logistics capacity to determine if you are
able to service a large client like Costco. Knowing your capacity
will help you determine what your sell through expectations will be.
b. Analyze Costco’s routing guide to ensure you are including all
required aspects when looking at logistics.
VI. Other costs:
a. Review the below additional costs.
i. Customer service support: Do you have the phone
support required to handle the influx of customers or will you
have to hire a company to handle this aspect.
ii. EDI Costs (Electronic Data Interchange): Price out EDI to
include in your financials.
iii. Promotional costs: Will you want to participate in any
promotions? The various promotions at Costco are where
the sales can really explode and should be planned for
accordingly.
iv. Shipping: Costco will require a delivered cost to their
depots. You must cost average this out and include in your
cost structure.
v. Returns and defects: How will you manage the return and
defect portion. This can get expensive and should be
carefully evaluated.
VII. Potential sell through quantities: Based on what divisions of Costco
you are going after create some scenarios that show potential quantity
sales. Costco has 3 divisions in the US and an international division:
a. Costco Wholesale
b. Costco.com
c. Costco Road Show
d. Canada (Canada is Costco’s second largest market with over 70
warehouses)
e. Mexico
f. UK
g. Taiwan
h. Japan
i. Korea
VIII. PNL:
a. Create an item PNL using above information to determine viability
of program. You never want to do this after the deal has been
made. Entering into a program and finding out after you are having
success that you are loosing money will be devastating.
b. Moving to the next step will be based on the outcome of your item
PNL.
IX. Costco:
a. Decide which division of Costco you should contact first.
b. Make initial contact with Costco buyer and gauge interest. You will
probably need help here as getting through to Costco buyers can
be very difficult if not impossible.
c. If enough interest exists set an initial meeting at Costco HQ.
X. Pre-meeting
a. Final decision on at least two, no more than three packaging
options. Nail down your options as you will only have
approximately 30 minutes to pitch your idea to Costco and you
want to have time left over to discuss next steps.
b. Final decision on cost pricing to include in presentation.
c. Create presentation
d. Confirm meeting 1week prior to date.
XI. Meeting:
a. Presentation: In your presentation be thorough, but not over the
top. Keep your pitch smart and to the point.
b. Q & A: Be prepared for Costco to have some questions not just
about your product, but about you and your company as well.
Know your competition and your market. They will test you.
c. Meeting follow up: Make sure you nail down next steps and follow
up before you leave the meeting.
Helping you partner with Costco is my specialty. I can help you with
every aspect in the above outline.
Costco is decidedly one of the world’s most successful retailers
ranking #5 in the US. See http://www.stores.org/pdf/08TOP100.pdf .