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 ones that are out? The successful companies had the following in common:
- 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.
- 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.
- They understood Costco’s business model and that Costco would not bend their rules even for them.
- 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.
- Product selection: Determine if a single product or multiple products will be offered. At times, in order to create the value needed to meeting 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.
- Pricing: Research your distribution network to determine the lowest sell prices in the market on the products you would like to offer Costco. 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. Create a possible pricing structure taking into account prices currently being offered.
- Distribution effect: 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.
- Packaging: Determine what type of packaging you will be offering to Costco. Costco is very specific on their packaging requirements. Generally the require a single display pallet. Get quotes from a couple of different companies on the graphics and packaging.
- Logistics: 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 understand what your sell through expectations will be. Analyze Costco’s routing guide to ensure you are including all required aspects when looking at logistics.
- Other costs: Review and take into account these additional costs.
1. 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?
2. EDI Costco (Electronic data interchange): Price out EDI to include in your financials.
3. Promotional costs: Will you want to participate in any promotions? The various promotions at Costco are where the sales really explode and should be planned for accordingly.
4. Shipping: Costco will require a delivered cost to their depots. You must cost average this out and include it in your cost structure.
5. Returns and defects: How will you manage the return and defect portion. This can get expensive and should be carefully evaluated.
- 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,
c. Costco Road Show,
d. Costco Canada,
e. Costco.com Canada,
f. Costco Mexico,
g. Costco UK,
h. Costco Taiwan,
I. Costco Japan,
j. Costco Korea.
- P&L: Create an item P&L using the above information to determine program viability. 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 losing money will be devastating.
- Costco: Decide which division you should contact first. Make initial contact with the buyer and gauge interest. You will probably need help here as getting through to Costco buyers can be very difficult if not impossible. If enough interest exists set an initial meeting at Costco HQ in Seattle WA.
- Pre-Meeting: Final decision on at least two, no more than three packaging options. Nail down your options as you will only have approximately 30 minutes or less to pitch your idea to Costco and you want to have time left to discuss next steps. Make your final decision on cost pricing to include in the presentation. Create your presentation and print out more copies than you think you will need. Confirm your meeting one week prior to the date.
- Meeting: In your presentation be thorough, but not over the top. Keep your pitch smart and to the point. 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. Make sure you nail down next steps and follow up before you leave the meeting.