Grocery Update #53: Costco Date.

The Club Store of Your Dreams.

Costco Date.

A Club Store Mixtape.

We are members of the club. You know it’s a club because you get carded at the door. No longer just an inquisitive glance from an alert associate, giving you the once over as they eye your plastic I.D.. But a digital scanner for your bar code. We are members, we paid the fee. The wife is ready, she scans, nods to the vigilant associate as I push the oversized shopping cart forward into the massive warehouse, eyes squinting from the sudden florescent overload. Not just any club, of course. And not just any warehouse.

Civilians can’t amble into a UNFI DC or a C&S produce depot and just demand service and attention. Sure you order from Amazon, but you don’t actually shop at an Amazon warehouse, you would absolutely shit yourself if you spent a few minutes in one of those beasts.

This though. It Is A Club Store. Wholesale prices for the masses.

Our monthly pilgrimage to the third or so largest food retailer in the U.S., the pride of Kirkland, Washington. Besides full service gas, the club store is possibly the peak of late capitalist human civilization in the Global North, complete with all of its externalities, contradictions and absurdities. The Alpha and Omega of warehouse club stores, Sol Price’s baby, Costco. Today’s our Costco date.

Sure, there are other club stores. BJ’s is alright, it mostly gets the job done. Walmart’s own little Sam’s Clubis the other big player, but it is just a bland facsimile, a bit of a wannabe, a really big also-ran, following the usual pattern of Sam Walton stealing someone else’s best ideas and scaling them into absurdity, Old Sam was the Elon Musk of retail, even naming Walmart’s club store after himself for gawdsakes. Sam’s is to Costco like Chobani Greek yogurt is to the O.G. greek, Fage. A bland facsimile, scaled to absurdity.

But Costco is an absolute, a basis of comparison, a fixed point in time and space, a retail entity that demands capitalist relativity warp around its stucco and cement façade, global supply chains and unique membership-focused business model, vast pallet stacks of consumer packaged goods and, of course, ridiculously cheap hot dogs, that the former CEO would kill his successor if he ever raised the retail price, all so that you, the customer, the member, gets some damn good deals and as sure as the night melts into day, buys more than you damn hell planned to.

Costco is always busy too. The hours are limited, our local store closes at 6pm, and we are not morning people, so we always end up in the mid-afternoon rush. The parking lot is massive, such a waste of space, so we circle a bit until we find a spot about 3/4^th of the way around the building from the main entrance, and like Kirk in Star Trek IV (the best one) planting a cloaked starship in Golden Gate park, we try to “remember where we parked”. Unlikely. The shopping carts, as mentioned, are huge, like Home Depot shopping cart sized, but instead of chain saws, outdoor grills, or small household appliances, we are coming to buy food by the caseload. This isn’t an everyday or even weekly excursion, but a monthly pilgrimage, stocking up on a few key items, and likely getting tempted by a few impulse items so that we don’t come back again until the next astrological sign’s comparable phase of the moon. More or less.

Now that we are past the security scanner, we are in the zone. The merchandising starts immediately, no real warmup here, no lead in, just volume buy after volume buy. A row of consumer goods on your right, forming a wall of packaged stuff at eye level, merchandised in display pallets, underneath 30-40 foot high metal pallet racks holding all manner of precisely tagged overstock, all pallets placed even more precisely next to each other by hydraulic forklifts and electric pallet jacks, item by item with little daylight or transition space between all of it.

Want to keep kids off the Tik-Toks and Snapchats? Teach them how to drive forklifts and pallet jacks, those things are fun!

The magic of hydraulics, where you, a puny meat bag, can insert your massive metal fingers into the wooden slots of a 40x48” pallet and lift several hundred pounds of water, knives, baby food, flatscreen TV’s, ottomans, jars of Nuttzo or bags of kitty litter like it was nothing. You are now an earth-born Superman, a credible Hulk, a benevolent Homelander, now actually useful to society and able to pay the bills and have a career through your magic forklift abilities. Forklift certifications for all, that’s how we will win back the alienated youth.

Forklifts make Costco tick. Most grocery stores, they have a forklift or two at the loading bay, in the back room, ready to unload trucks, move cardboard bails or relocate large pallets of backstock. But the work itself is done by hand, product touched at least three times, from truck to dock, from dock to cart, from cart to shelf, loaded and unloaded by clerks by the case until products are neatly jettisoned on shelf for the customers to buy. Not Costco. It all stays on the pallet, moved by forklift from truck to dock, from dock to pallet slot and maybe once more if it was in a high elevation backstock pallet, from nosebleed seat slot to floor merchandised slot, ready for the customers and their oversized shopping carts.

The merchandise itself, seasonal, random, but geared to sell better than proverbial hotcakes (and how DO hotcakes sell, btw, show me the data), products selected through the best supplier partnerships or spot buys by the Costco buyers in their regional offices all over the country. Costco is very regionalized. While their private label Kirkland products have more or less national footprints and huge in-store and cross-industry market share, many of their products are decided regionally, so if you are in San Diego or Austin or Philadelphia or Seattle you will have an assortment that is geared to your marketplace, its specific demands and its more general trends that it shares with others. It’s there because it will sell, and fast.

That is the first thing to understand about Costco math. It is not about margin. It is about volume.

Each of those slots must generate volume, unit turns times dollar sales, sales velocities, productivity, sales per square foot, sales per pallet slot. Costco is a volume play. But Costco maxxxxes it ou. Walmart and Kroger run 24% margins. Volume plays, thin bottom lines still means huge profits when in the multibillion dollar range. Convenience stores, specialty food shops, natural food stores, those are margin plays, high markups, high touch, high hopes. Each product slot is maximized and rationalized to sell you as much stuff as they can fit into that 40x48” space and if it makes or exceeds those thresholds by store, by category, by week or fiscal quarter, you will see it again. If your product misses those volume thresholds, well, it was nice while it lasted, sorry, not sorry, that’s rules of the game.

The buyers have fiscal targets to hit, the sales and margin targets are just broken down and busted out across a few dozen product categories across the store. Each square inch is monetized, each product is a calculated risk, a consumable gamble, forecasting the sales and margin dollars that each slot will quickly need to accumulate in order to appease the Wall Street gods every 90 days. It’s about the volume. Costco math.

On your left as you walk in, the aformentioned widescreen TVs, household electronics, frankly an area that I avoid, have no interest in and really don’t spend much time in. I am not much of an electronics guy. But a pallet drop of baby wipes catches my eye, I am so basic. 900 wipes for $19.99, my mind flashing back to that Walmart register display of Dude Wipes, 48 manly scented wipes for $15 or so bucks. More meandering through the aisles and rows we try to avoid. Things we don’t need, categories we don’t concern ourselves with. Couches and ottomans. Apparel, folded neatly on tables, quilted shirts, wool socks, long underwear, boxer briefs, blouses, leggings, gym shorts, bathing suits. I will be honest, I once bought a shirt and a pack of socks at Costco, but I am more of a Smartwool and Dickies guy. I am extremely basic, but not a Costco-style dad.

Rows of vacuum cleaners, household appliances, office supplies, more knives and kitchen stuff, even a massive an wooden outdoor backyard pergola.

Yes, they put the food in the back so you have to walk through all this bullshit to get to the good deals for the pantry.

I sat on a couch out of spite. Not that their prices are bad on any of the hard goods, but when you take a max of 14% markup on products and you sell 10% or so of the nation’s groceries, 14% on a $10 two pack of gluten free bread is $1.40, but 14% on a $500 sofa bed is $70, 14% on a $5,000 pergola is $700 and when 50% of your net income is just straight up membership dues, charging your loyal citizens the privilege of just entering, you also need to upsell, upsell, upsell. Volume first, then profit dollars. Costco math.

Wall Street loves those topline numbers and comparative sales growth probably as much as it loves that EBIDTA. And Costco keeps delivering all of that to the asset manager class, the institutional investors, the mutual funds and the pension funds. Costco capitalism has been a success story Sol Price probably never dreamed of. The son of Jewish socialists who went over to the capitalist side, a businessman who still wanted to look out for the “little guys”, his employees or his suppliers and customers.

Whether his successors can live up those ideals, and stay true to that model is a daily challenge, something that was frequently highlighted during recent hardball Teamster collective bargaining contract negotiations. The Teamster-organized employees fought hard and got a decent contract in the end.

Yet Costco did not back off their DEI policies, unlike many of their competitors and peers, Walmart, Amazon, Whole Foods, Google, Target, rolling over for Adolph Twittler and his cartoon villain henchmen’s anti-DEI crusade. The white nationalist, faux-activist investor, incel-Nazi babymen crying in their hoods, thinking that they could triumph-of-the-will Costco’s board, missing the point that Costco is a membership store and a retail business, and as long as customer-members are buying it, as long as those dues keep in coming and making up around half of their bottom line performance, as long as those suppliers keep making custom runs of product to be sold at a maximum of 14% markup, as long as the profit dollars keep coming in like shrink-wrapped, pallet-stacked tsunamis, Costco will sell what it’s members are buying, including using DEI as a strategy for suppliers and employees, crying incel-Nazis be damned. These days the bar is set so low, that just doing business honestly seems heroic.

The gluten free 2 pack of bread was just a decoy, leading us into the bakery and a pallet drop circus with more or less every major name brand of potato and tortilla chips in neatly arranged pallet formation, heavily weighted towards the very best of Pepsico-Frito Lay and Campbell’s/Snyder’s, the ultimate snack category duopoly. Costco buyers take the indecision out of your shopping habit by just stocking the absolute best selling one or two items in each brand and product segment, with piles of Siete, Doritos and Lays side by side with Cape Cod and Late July. These are party sized, 24 oz of Lay’s for $4.99, 24 oz of Late July Jalapeno Lime for $6.99, twin pallet drops of Lesser Evil popcorn, 14 oz for $5.99, a good deal for a brand that has spawned everyone’s favorite DOGE nepo baby, and 15 oz of Siete tortilla chips for $6.99, just a bit higher than what you could find at Whole Foods, but at Whole Foods it is a 5 oz bag. As usual, Costco lining up pricing at about 40 cents on the dollar to full retail price, the next piece of Costco math.

That is the sweet spot for Costco, 40 cents on the dollar to retail, the wholesale pricing on large-sized and exclusive pack sizes negotiated by its formidable buyers who purchase the whole, exclusive production run, a cost efficiency matrix of a trimmed down assortment of best sellers just like an Aldi or Lidl, on merchandisable pallets that just need to be placed by forklifts and then handled by a warehouse staff that is among the most well-paid, most efficient and with the highest morale of any retailer, thanks in large part to those great Teamster contracts, and a company culture that seems to still value its employees and takes care of its own, although lately they’ve needed a bit of pressure to follow through on that.

That magic number of 40 cents on the dollar, taking into account the maximum 14% markup above supplier’s cost (plus or minus or some shipping and logistics expenses rounded up to the nearest fraction of a penny per ounce per item) also means that if Costco charged an actual retail markup of 40% above their landed cost, they would still be 20 or 30% cheaper than most retailers on a price per ounce basis. Costco math is unbeatable. By Walmart, by Sam’s, or by former Whole Foods’ regional presidents that couldn’t convert markup to margin.

What I mean… is that when I was in the national grocery hot seat at Whole Foods, my favorite Sunday pastime was getting irate calls from regional presidents when they would be out shopping with their wives and they would see some formerly obscure organic food brand doing a road show or pallet display at Costco, asking why I couldn’t get the same product at the same price and me politely explaining to them, as I took a break from doing the laundry or yard work, knowing that they would be calling my boss to complain about me first thing Monday morning, that I would be happy to negotiate an everyday low cost minus any promotions or marketing funds on the same or an analogous item just for them and their region of stores, and then they would still have to price it at a negative 10% gross margin and will still be more expensive on a per ounce basis than Costco. Why? Because Costco math, 40 cents on the dollar to retail. You can’t out-Costco Costco.

Especially at Costco volumes.

They sell four times as much food as Whole Foods, twice as much as HEB or Aldi, a lot more than Publix or all the various Ahold-Delhaize/Giant/Food Lion/Stop&Shop chains combined. They sell a lot of food, most of it fully embedded in the mainstream, chemical intensive, industrial food supply, with some significant dabbling in “better for you”, plant-based, humanely raised, sustainable and organic supply chains, all scaled up to club store volumes.

Their sales are growing, as is their market share, as they steal customers from mainstream and regional grocery, mass market, discount, natural-specialty, everyone looking for deals, for better food at better prices.

The bakery does not disappoint, rolling racks of bread, pastries, muffins, cookies. I do not partake. Flanked by the meat and seafood selections, vast coolers of the industrial factory farm world’s best, freshly cut and wrapped by skilled butchers working just behind a glass partition. They were even scrubbing and hosing down the cutting room floor the last time I was there, nice to see some food safety practice.

Organic boneless chicken breasts, $5.99/lb with 3-two pound compartments, a full pack for $36 or $37, proof that while organic can scale, a retailer needs suppliers that resemble factory farms moreso than pastoral regenerative fantasies. Big begets big, it is just math. Plainville organic ground turkey, 2-1.5lb trays for $19.99, also at factory farm organic scale, the wavy patterns of the ground, extruded meat the same at HEB, Wegman’s, Wheatsville Co-op. Farmed salmon, farm raised clams and mussels, whole fish.

Just like the legendary $1.50 hot dogs, the cheap retail price never counting the externalized costs that would surely make this a $10 hot dog, like the Costco chicken supply chain that has turned much of Nebraska into a Costco chicken colony and the resulting labor and environmental externalities of industrial chicken production. Big club stores need big chicken, even if it is their own big chicken.

The crowd slows down here, tarrying alongside the endless bounty of industrial meat and seafood coolers, just as you get to the upright coolers filled with prepared meals, cheeses, dips and charcuterie. No eggs though. Between avian flu and an accidental salmonella contamination at their supplier, Costco’s epic 18 pack organic, pasture-raised eggs are out of stock. Sad, but we are fully in the era of zoonotic pandemic inflation and supply shocks, so unless we completely change how we handle food safety and animal husbandry, we better get used to it or develop alternatives.

But at least they have Sukhi’s chicken tikka masala, good stuff, Sukhi is also a real person and quite a sweetheart, $15.49 for a 2.25lb pack, and Kevin’s Paleo lemongrass chicken, 32 oz for $13.99, although I have never met Kevin. Costco takes the “better for you” and clean label trends seriously, but at 40 cents on the dollar, including Amylu andouille chicken sausages, Whole30 pesto chicken, Teton Waters Ranch grassfed polish sausage, $17.99 for 36 oz, alongside some Aidell’s ABF chicken sausages, 3 lbs for $14.99, Tyson’s best clean label by far and possibly their only redeeming quality as an enterprise. Wild sockeye salmon, $21.99 for 16 oz of filets. Organic DPO feta cheese from Greece or Bulgaria in tubs and some organic goat cheese logs at comparable quality to Trader Joe’s. Lots of Cabot and Laughing Cow. And Kerrygold, of course.

Costco also sells produce. Not farmstand produce or public market produce, with names and pictures of farmers and designated origin and terroir and varietal nomenclature. Big, commodity produce, scaled up to supply the club store supply chain. Mostly in see through plastic packaging, brightly branded, like the “organic snack apples” with the goofy cartoon dragons coyly offering healthier snacks to school aged ruffians, like they were al extras from “How To Train Your Dragon” Part 26.

The produce run is split between a few rows of merchandisable pallets chock full of potatoes, onions, apples, bananas, pears, mangos and other less perishable fruit, and then a walk in cooler loaded with vegetables, salad greens, berries and other more temperature sensitive items. There is no wet rack at Costco, no produce misters. There is just produce by volume, in big 3, 4, 5 lb plastic bags or stacked in graphically illustrated corrugated cardboard pallet drops, labeled clearly as Kiwis or avocados, lemons, limes, organic or otherwise.

Big Produce is well represented at Costco. Scale begets scale, Earthbound Farms salad kits and ubiquitous spring mix, $4.29 for a full pound of it, $2.99 for 2 lbs of organic French green beans, or $1.50/lb. Wegmans was $4.99/lb on the same thing, that is 30 cents on the dollar to retail price, Costco beating its own model by another 30%. Driscoll’s berries, of course, like Walmart, Costco was built for Driscoll’s, and vice-versa, outsourced, H2A-plantation economics to ensure everyone can get basic, undifferentiated fresh berries everywhere, anytime.

Beverages. Enough bottled water to fill their own Pacific gyre, the Costco gyre, over a dozen pallets of 24 pack half liter plastic bottles, shrink wrapped in another layer of shrink wrap. Coca Cola’s Topo Chico, 18 packs for $22.99, probably their smartest acquisition since FairLife, so once #MAHA and RFK ban soda from SNAP, with a bipartisan paternalism sanctimoniously judging what the working poor should consume, because god forbid employers pay living wages so folks don’t need SNAP. Coke can still sell plenty of seltzer and factory farmed high protein muscle milks to the masses. Waterloo seltzer, 24 pack of 12 ounce cans, $9.99. Kirkland seltzer (aka “sparkling water”, because even Costco must absolutely gentrify seltzer), 35 pack for $11.49, Polar Seltzer, 32 pack for $10.99 for the northeast crowd, and LaCroix, 24 pack of 12 oz cans for $7.99, shitty seltzer priced to sell. Mexican Coca Cola, 24 pack of 12 oz glass bottles, $35.49 and a 24 pack of American Coke, made with the heartland’s best high fructose corn syrup, $16.99. Flanked by two pallets of Pepsi, diet silver and regular blue, 36 pack of 12 oz cans for $17.79. Millenial and Gen Z faves Poppi, orange cream flavor like a sketchy South Bronx ice cream truck popsicle, 15 pack of 12 oz cans for $19.99, in case you like “better for you” carbonation and gastrointestinal distress valued at over $2 billion.

Kirkland organic milk, 18 pack for 13.69, adjacent to an 18 pack of Horizon organic chocolate milk for $17.99. And then plenty of soy, almond, oat milk, in 6 and 12 pack configurations, organic and conventional, plenty of cow-free options for when avian flu fully jumps species and collapses the American dairy sector, the only question is when.

Call me a pessimist, but with God Emperor Cheeto Palpatine gutting regulators with infectious disease surveillance and food safety oversight, virals will likely go viral. Zoonotic pandemic supply shocks, your new favorite word salad. Mask up, it’s going to suck.

Dairy coolers and frozen food aisles are interspersed among the pallet racks of ambient grocery. Chobani Greek non-fat yogurt, $15.99 for 20 pack of 5.3 oz cups. Kirkland butter, $13.99 for 4 1-lb sticks. Kirkland organic A2 Whole Milk, $13.59 for 3-64 oz cartons and then a 3 pack of 64 oz just plain old organic 1% milk for $9.74.

No Boar’s Head at Costco, no deli meat recalls, no thank you Listeria liverwurst. Instead, Dietz and Watson sliced turkey, 1.7 lbs for $17.49. A ten count of Beyond Meat burgers, free of GMOs and weird ass impossible heme fake blood analogues, $15.49, or just over $1.50/patty, making plant based accessible to all. One of my perennial faves, organic broccoli, 4 lbs for $8.99, a stark contrast to the pallet drops of Lucky Charms and Tony the ‘roid-addled megafauna, 62 oz for $8.99. That is almost four pounds of breakfast cereal, just pennies per bowl for your ADHD sugar demons.

Costco has also really shown up with spring rolls, kimbap, dumplings and noodle bowls, with a selection cherry picked from H Mart’s best and brightest, and around the corner they have a comparable killer selection of ramen bowls from Nongshim and Top Ramen.

Costco has a talent for this talent spotting, dipping their toe into categories and draining the pool. We used to joke at Whole Foods that Costco buyers would follow us around trade shows to see who we were talking to and then stock all our favorite brands. More likely, they were just shopping our stores, talking to food brands and their brokers, seeing what were the best sellers in syndicated natural-specialty channel data for each consumable category and then sku-ing down and scaling up to sell the best and brightest of CPG for 40 cents on the dollar, totally knocking everyone out of the running. When those brands want to get one purchase order equal to their annual sales at a Sprouts or Whole Foods, they pray to the club store gods for a Costco road show.

Like the Kirkland organic hemp seeds, 32 oz for $12.89. or Kraft blue box, $14.99 for 18 count, head to head with Annie’s 12 pack of 6 oz for $16.99.

On and on, all grocery categories, pasta, rice, sauce, olive oils, canned salmon, maple syrup, cereals, ready to eat entrees, granola, same formula, same efficiencies, sku’d down, scaled up, direct buys from manufacturers to their DCs, no trade spend, exclusive production runs, quickly slotted in place by forklifts or pallet jacks, no handholding, no artsy displays, no handwritten logos, no case stacks or power towers of chips and soda, just merchandisable pallets, unwrapped and ready for selling, 40 cents on the dollar, maximum markup of 14%. Costco math on our Costco date, every day.

The snack aisles at Costco are the most fun. Right when you think you are done, you have wrapped around the last consumer packaged goods pallet stack racks, hastily avoided the high dollar drug store pharmacy, health and beauty aids section, expensive even at their 14% markups, and you then hit the wall of nuts. So many nuts. Big bags of cashews, 2.5lbs for $14.89, in shell pistachios, salted and unsalted for $15.79, or shelled pistachios, 24 oz $15.79, unsalted mixed nuts, $15.39 for 40 oz, fancy mixed nuts, $14.49 for 40 oz and fancy cashews, 40 oz for $13.99. So fancy, right? High quality, new crop, not rancid, selling fast enough to not need refrigeration. All within sight of the registers and the rotisserie chickens, legendary $1.50 hot dogs and $3.99 chicken bake. Flanked by pallet stacks of protein bars, granola bars, trail mix, cashew clusters, weird ass impulse buy carb-heavy yet somehow healthy seeming packaged snacks, even some sprouted organic pumpkin seeds and other random convenience foods that may be ultra-processed, still feel like they are step above your basic cookies and treats. Just don’t tell Dr. Van Tulleken.

The registers are a zoo. Costco is always crowded. But the cashiers are both chill and efficient, friendly and helpful, unloading our stacked shopping cart, quickly ringing it all up and then deftly re-stacking it all in the cart. Costco cashiers are aces. We keep the receipt, because even though we are members, were scanned in electronically and greeted by a human at the entrance, Costco still has eagle eyed shrink-police awaiting us at the exit to eyeball check our cart item by item to absolutely make sure that we are not shoplifting from the club.

Satisfied, we are free to go, our monthly pilgrimage, our regular, borderline enthusiastic participation in possibly the peak retail experience of our rapidly collapsing society, our shopping trip at an exhausted close, despite still having to load our bounty into the car and then haul it all home. Members of the club. Costco, baby. Costco date complete.

peace.

(Perspectives 100% our own and not reflective of our sponsors.)