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Comment by codegladiator | Hacker News Reader

Why can't they still sell it at stores which they don't owe?

Bear in mind, I have no idea how wholesalers work in this day and age. But once upon a time, a wholesaler like Costco sold stuff at cost (e.g. they charge what they paid the supplier for the product), and their revenue derived from the annual membership fees. So it's not in Costco's interest to start selling Kirkland Brand Extra Virgin Olive Oil at Safeway, because it wasn't a profit center to begin with. The whole point of selling their own branded product was:

a) To reduce costs by controlling the entire means-of-production

b) To ensure quality control on the product and build faith in the brand, which in turn

c) Pulls people into the store, forcing them to buy a Costco membership if they want the product.

With regards to (a), Costco doesn't do that. Their entire Kirkland line is white-label products, excepting their pizzas which use dough made by regionally locally bakeries. They do have employees oversee (b), but they don't oversee the actual production; they conduct random inspections of shipped products.

For example, Kirkland coconut water is simply white-label Vita Coco, and the made by label indicates it is packaged for them by the same company that produces Vita Coco.

I'm not sure about the old days, but I believe Costco has stated they cap their markup at 15% -- which along with membership fees pays for employee salary, operations, and profit. I'm guessing that's overall and some products are more profitable while others (like their rotisserie chicken) are subsidized.

Better to cancel the line than supply competitors with better cheaper products than your own store.

Sorry I don't get the point. Costco's competitors selling Costo's cheaper product would still harm costco ?

Does costco get some extra benefit if the consumer buys Kirkland from costco ?

> Does costco get some extra benefit if the consumer buys Kirkland from costco ?

Yes. Costco positions their store brand as a major part of their appeal. This attracts more consumers to their stores, which

A. Increases membership, for which there's an annual fee, and

B. Increases traffic, increasing sales of high margin items as well as the low margin store brand.

If Costco sells their products at other stores they are effectively shooting themselves in the foot: It is providing the lower price of their products to be accesed without paying for a membership; which is how Costco makes money.

Costco's value proposition is that they make (on average) no net income from sales of their products, and that you will find no other competitor who can sell the same quality products at a cheaper price (because costco's already selling them as cheap as possible). In exchange, they ask you to pay a membership fee, which is their net income.

If they were to give away their reputation to other sellers by letting them sell their QC'd products, they would be lowering the value of their memberships.

That's not always the case. Sometimes the white label results in a small decrease to the name brand and captures sales to a different market.

One of the reasons I keep a Costco membership is for access to Kirkland products. And I think they know that a lot of their customers feel this way.

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