Costco Private Label Market Share Under Expectation

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October 11, 2011

Costco Wholesale reported lower than expected household penetration in private label products even as it raises membership fees.

Store brands penetration hovers in the low 20 percentile range, said Richard Galanti, CFO, a far cry from a previously discussed goal of mid- to high-30s. Galanti addressed the issue of private label penetration during the questions and answers session following Costco's quarterly earnings call with analysts.

Reaching store brand penetration of 35 percent or more is still a goal, said Galanti, but one that's still many years away. "I think that's a stretch goal," he said. "It'll keep going in that direction, but there's no time line." There never was a definitive timeline, but company presentations had projected Costco would reach a penetration level in the high 30s before the end of the decade.

Last fall, Costco introduced a variety of new store brands products including canned goods -- both fruits and vegetables -- nuts and snack items. "We continue to come up with new things," said Galanti. "We had shearling boots the last couple of years and some other additional apparel items, men's dress pants and shirts."

There's a higher proportion of store brands in food and sundries, and health and beauty care, than other categories this year, which management expects will continue. "I think the trend is that direction," said Galanti. "But we're not committing to exact numbers other than when asked."

Penetration of Kirkland Signature products is higher in U.S. stores than international markets. Acceptance levels of the store brand is high in stores outside the U.S., but there are fewer items because many are U.S. sourced, he noted

Costco is raising membership fees by $5 and $10 annually. Individual and business fees will increase from $50 to $55, while the executive membership fee will be $110, up from $100. Membership fees have not been raised since 2006. The new rates are effective Nov. 1 in stores, and Jan. 1 2012 for renewals.

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