How to get your product into Costco
- Understand you client: Before you spend a lot of time and money creating a product, you should know if anyone will want to buy it. Learn more about Market Research
- Learn if it’s protectable: Know if you can defend your product against cheap copies if it gets knocked off. Learn more about Copyright and Patent your product
- Test your product: Make sure that there’s a demand for your product and the customer understands what you are selling when it’s on the shelf and nobody is there to explain it. Learn more about Product Testing
- Perfect your pitch: Before you speak to decision makers, know your numbers, know your retailer and know your logistics in and out. Learn more about Pitching Your Product
- Don’t do it alone: If you haven’t been successful in retail before, a secret of success is that you can’t do it alone. Having great sales staff, customer support and marketing partners can take you from zero to success faster than if you tried on your own. Learn more about Retail Partnerships
Contact Costco Buyer
Do not trust any “list” of buyers.
Typically retail buyers change either companies or positions every few years. This strategy helps retailers know that their buyers are not taking “kick-backs” and are selecting the very best product for the very best position each time.
Buyers are typically held to a very rigorous standard of sell-through volume that they must hit and because of this they are risk averse. Your job as a supplier or vendor is to convince them that the buyers going into the stores not only know about what you’re selling but are actively seeking the product in the store currently.
Sometimes easier said than done, however you must get on Costco’s radar.
Call the Costco’s corporate phone number and ask for the names of the buyer and assistant buyers in your category.
Always leave voicemail with whomever the dispatch will connect you.
Use that information to connect with them on LinkedIn, RangeMe and any other professional social platform.
Ask your representative at your trade bureau to connect you to the Costco buyers as they will potentially have a better history.
Use advertising, public relations and marketing to make your brand known to Costco’s buyer through 3rd party websites & industry media sources.
Be everywhere that they look, the key is to position your brand as the obvious choice when Costco is looking to either refill a slot or create a new category.
Latch on to the news of the day and any trend that will make your product fill that niche whether that be Non-GMO or Vegan Leather for example.
Investing in your brand can only benefit your opportunities in the future. As being “top of mind” will have a ripple effect when you physically present your product at a Costco buyers meeting or trade show in the future.
Costco buyers typically got to their position by picking “winners” and know how to see through the fluff.
Focus on the numbers, know your bottom dollar during a negotiation and how fees and chargebacks may cut into your position.
Know that long term success may outweigh short term sales, however financing large purchase orders from Costco when the net result is negative is not sustainable.
Understand the playing field and the other brands that are in your space, what they are offering as promotion and pricing and how you can stand out against them.
By knowing that each buyer at Costco probably knows more than you do, take an active listening approach to sales and understand that no is a perfectly acceptable answer that may have saved you millions of dollars on the backend.
How to Submit a Product to Costco
There are several ways to get a product placed in Costco. However, most entrepreneurs only dream about getting their product distributed to major retailers, few actually do it. We have experienced a significant rise in interest since the show Shark Tank started airing on NBC. Mr. Checkout has had the pleasure of working with a few Shark Tank success stories such as KISStixx and 180 Party Cups which are now currently being distributed around the country to stores like Walmart, Target, Kroger, 7-Eleven and more.
If you envision your product would be a good fit for Costco, we have a few steps to help you get your product on their shelves.
How to Get Your Product into Costco: A Complete Guide
If you have ever shopped in a warehouse club, you know what to expect from the biggest of them all: Costco. Not only do they sell items you need like rotisserie chicken and toilet paper, but they also offer exclusive items you can’t find anywhere else. If you are a vendor with a unique item to sell, how do you get your product into Costco?
Here are the steps to follow to get your product into Costco:
- Gather More Information Through Your Contacts
- Make a Name for Yourself to Get Noticed
- Know What You Are Talking About: Gather Your Facts
- Practice, Practice, Practice Your Pitch
- Making the Call to Start the Application Process
- Costco’s Human Trafficking and Anti-slavery Policies
- Minorities and Woman-owned Businesses at Costco: Supplier Diversity
To reach the ultimate goal of getting your product into Costco, you need to sell the idea and the business behind the product. The competition is fierce, and you need a battle plan. With this complete guide, you will learn the steps you need to get your product into Costco if you are ready to sell in Costco, and everything in between.
Step-by-Step How to Get Your Product into Costco
You have a great product, and you would like to expand your sales to a national, even global market. Costco seems to have the audience and platform you want. To get your product into Costco, you need to know where to start. Let’s look at each step you will need to take to get prepared to present your product to the Costco buyers and get your product into Costco.
Gather More Information Through Your Contacts
The more contacts you make, the more questions you can ask, and the more impressed the buyers will be when you get in front of them. If you can identify the Costco buyer for your niche, then you can discover their expectations. Plus, once you have that conversation, no matter how brief, your name is in front of them and will help later on.
- Start by making an appointment with your local Costco store manager. They may be able to give you feedback on whether your product will work with their lineup and if there are similar products already being sold. They may think your product will work well in their location and possibly pass your name along to the appropriate person.
- Check out the company profile on LinkedIn. They have a list of regional buyers you can reach out to. Be aware that buyers change often, and the contact listed may not be valid anymore.
- For non-food or sundry items, Costco has the corporate offices addresses listed on the website.
- For food and sundry items, the Costco website suggests you call the regional office.
Make a Name for Yourself to Get Noticed
You want people to notice you so that Costco will see your product’s potential value.
- Create a website or start a blog if you don’t have one already. Get people’s attention by talking about your product. Websites attract attention and generate customers. Those stats will be numbers you can use in your presentation.
- Use social media. Facebook, Instagram, Twitter, are all great platforms for free advertisement. A video on YouTube brings in even more followers.
- Visit tradeshows. At a tradeshow, you can see how other vendors have promoted their products and listen to their stories of their successes or failures.
Know What You Are Talking About: Gather Your Facts
Buyers are taking a risk when they are approving a new product. Your opinion is nice, but they need to be able to base their decision on hard facts. Know your product. You should already have gathered most of your information in your business plan and market research, but now is the time to gather them together so you can make your presentation.
Practice, Practice, Practice Your Pitch
Get ready to sell your product. If you get an opportunity to meet with a buyer, you probably won’t have another chance to make your presentation. Make it count.
You also won’t have a lot of time to give your presentation. Here’s what you should focus on for your presentation in front of the buyers.
- Keep it short.
- Have slides and charts available, but keep the information on the relevant facts.
- Show your product and demonstrate how it is going to be beneficial for Costco to carry it.
- If possible, have samples of your product available.
Once you have your presentation ready to go, you are prepared to take the next step.
Making the Call to Start the Application Process
You have your facts. You have practiced your presentation. Now you are ready to start the application process by making calls to Costco. You can find the list of contacts on Costco.com under Vendor Inquiries.
- When you make your phone call, you should be prepared to give a description of your product and a brief overview of your business plan.
- You will be asked to complete a Vendor/Supplier application. Make sure to fill it out in detail.
- If you plan on selling online for Costco, you will need a website. Your website link will be incorporated into the Costco.com online store.
- Your completed form will be forwarded to the regional manager, who will then work with the category buyer.
- If your product gets approved and they are interested, you may be asked to make a presentation.
- Once you have completed all the requirements, you can start selling your product in Costco.
Costco’s Human Trafficking and Anti-slavery Policies
Costco has a policy against human trafficking and for anti-slavery as well as other moral and ethical issues. To ensure your business and product does not violate these policies, you may be audited before your application is processed and approved.
Minorities and Woman-owned Businesses at Costco: Supplier Diversity
Costco promotes diversity within its stores and its suppliers and vendors. This has added to its reputation. As such, they have developed a Supplier Diversity program to promote minority and women-owned businesses.
Costco’s Supplier Diversity mission statement:
“In order to represent a diverse supplier base, Costco is committed to providing opportunities for qualified local minority-owned and women-owned suppliers in the communities where we do business, when possible.”
To qualify to participate in the Supplier Diversity program, you must meet three criteria:
- The business must be at least 51% minority or woman-owned.
- The business must be registered as a minority or woman-owned business by the appropriate agency.
- The business cannot be in specific categories (see the Costco.com website for details.)
If you meet these criteria, you can apply using the Supplier Diversity application form and begin the process for approval.
What Does It take to Be a Costco Vendor?
It is easy enough to say that you want to get your product into Costco. However, before you start the process, you need to take a look at your product and your business plan. You want to make sure Costco will be the best platform for you to sell your product. You will also need to meet some pretty strict guidelines to be chosen by Costco and get your merchandise into their product line.
If you are ready to take on the challenge of getting your product into Costco, let’s take a look at what it takes.
What Does Costco Look for in a Vendor?
Let’s first look at your product. Costco sells many different categories of products. Does your product fall into one of them?
- Electronics such as television and media
- Tires and automotive supplies
- Toys and baby supplies
- Sporting goods
- Furniture and mattresses
- Lawn and garden
- Pet supplies
- Jewelry and watches
- Cosmetics, health, and beauty aids
- Office supplies and equipment
- Some locations even offer caskets.
Now that you have decided there is a niche in Costco for your product, you need to consider the product itself.
Costco carries a limited number of items or SKU’s. Typically, Costco maintains around 4,000 products. Compare this to a typical Walmart superstore that carries around 142,000 SKU’s. This limited number of items makes the competition in each category much more intense.
Why such a comparably small product line? Studies have shown that consumers tend to walk away when presented with too big of a selection of products. If they have a smaller selection, these studies show that they are more likely to choose an item and take it to the checkout counter. In this case, smaller (slightly) is better.
When Costco is deciding on a product they want to carry in their stores, they are looking for a few things that make a product stand out.
Is Your Product Unique? Within any category, there are numerous subcategories, each item slightly different than the others. What makes your product different? When you are considering selling your product in Costco, this is a major point for your sales presentation.
Can You Offer Your Product at a Costco Discount? Costco is known for offering good prices on bulk items. Costco has a margin overall of about 11.4%. This includes their own brand, Kirkland. You will be expected to offer your product at a lower price point and maybe with bulk packaging to meet Costco’s pricing guidelines.
Do You Offer More Than One Product? Typically, Costco does not buy an entire product line. Remember, they can only stock a limited number of products in their stores. Can your business run on a one-star product? Consider which of your products will gain the most attention and sell the most.
Can You Meet the Demand? If you are successful and get your product into Costco, you should plan on selling a lot. You need to make sure everyone involved in your business including your suppliers and manufacturers, can handle the increased volume. If you can’t produce the product, in the volume needed, you will not be in Costco long. Make sure you know your numbers when Costco asks for them.
The Technical Stuff for Getting Your Product into Costco
You have started your checklist and you are getting closer to getting your product into Costco. There are still a few things to prepare before you are ready to start your vendor application for Costco.
Legal: There is no sense in starting the process of getting your product into Costco if you cannot make it or sell it legally. Make sure you have all the following registered:
Marketing: Do your homework. Market research is an important part of your product development. Do Costco customers want and need your product? If your product won’t appeal to the average Costco customer, the odds are slim that you will get your product into Costco.
You need to consider the demographics of a Costco customer.
- Annual family income of around $73,000 to $93,000
- Usually college-educated
- Live in the suburbs and own a car
- Are willing to pay an annual membership fee
- Largest age group is 30 to 49 with the average age of 43, but the second-largest age group is 18-29 years
Now you need to think about how your product looks. You know your product is great and one of a kind. Now you need to make sure potential customers find your product and see the value. That means packaging design that is functional as well as eye-catching.
And don’t forget the label. Does it have all the information that is necessary as well as being attractive? Also, if you are selling a food product, the FDA has labeling requirements that must be in place before it can be sold.
Why You Want to Get Your Product Into Costco
You took your idea for a new product and you made it a reality. You have developed and perfected a business plan that lets you grow. Getting your product into Costco means millions of people will see your product both in a physical store location and online.
You know Costco is a big company, but there are other retailers that are bigger. Let’s look at some of the reasons you want to get your product into Costco.
Loyalty: Costco Customers are loyal. Costco is a global, membership-only warehouse club. It has over 101.8 million members as of May 2020. Of those millions, over 90% renew their memberships. This means people have confidence in Costco to provide quality products at a good price.
Reputation: Costco has a great reputation. People trust Costco to give them a variety of quality products. Costco’s item selection is limited to around 4000 SKUs’s so the products on the shelves are carefully chosen. Also, a limited selection size has been shown to increase customer confidence.
Locations: Costco has a big retail footprint. In the United States, Costco boasts 790 warehouse stores as of July 2020 with 546 located in the U.S. and Canada. While there was a decrease in foot traffic due to Covid19 after the surge in March of 2020, online traffic has grown over 64%.
Stability: Costco has weathered through bad financial times. Costco is currently ranked number four of the largest retailers in the United States. The company continues to grow despite global financial impacts. As of May 2020, Costco planned to open ten additional stores by the close of the third quarter.
How Costco Makes Its Money
You want to get your product into Costco. But now that you know how to get your product into Costco, do you know how Costco makes its money?
Costco is a huge company that has been around a long time. You may think that most of its income would be through sales margins. However, you should remember that part of Costco’s appeal to the customer is it’s cheaper than grocery store bargains and that they have the ability to buy in bulk. This means lower profit margins. While the sheer volume of sales does add to the bottom line, there are other ways Costco makes money.
Costco Memberships Are the Biggest Source of Income
The largest stream of income for Costco is selling memberships. There are four levels of Costco memberships. Each level has its own perks and benefits.
- Gold Star-$60
- Gold Star Executive-$120
- Business -$60
- Business Executive-$120
With over 90% of their customers renewing their memberships every year, that income is stable. And because with a membership, you are selling a service rather than a product, there is little overhead. That’s a lot of money to add to Costco’s bottom line.
A Costco membership is part of its reputation. People buy a membership from Costco because they feel they are getting a bargain for their money by buying in bulk. They renew because they like the experience and the prices.
While most of the income Costco makes comes primarily from membership fees, there are ways Costco reduces costs to increase that profit.
Costco’s Low Advertising Costs Add to The Bottom Line
Costco does very little advertising. New customers learn about the benefits of being a Costco member from statements made by current members.
Costco is not a place you normally go just to pick up a gallon of milk. Instead, many people see a trip to Costco as an event. Not only do you get to buy bulk amounts of toilet paper, but you can grab a hot dog and a churro for lunch. If you are lucky, you might catch a Special Event or Roadshow on a Saturday. At one time, the big appeal on Saturdays was the endless samples.
The bottom line is that people spend time at Costco. The more time they spend wandering the aisles, the bigger the items per ticket grows. The more items that go out the door, the more profit Costco makes.
Costco’s Better Pay Brings More Employee Satisfaction
Costco has a reputation for paying its employees well. Happier employees result in more job satisfaction. The more satisfied an employee is with their job, the longer they will stay which means the company does not need to find, hire, and train new employees, even if they are paid a lower wage.
Costco Keeps Its Product Line Small for a Reason
Costco’s product line is around 4000 items because, with fewer products, there is less inventory maintenance.
This can include:
- Warehouse storage
- Delivery trucks
- Warehouse employee wages
- Work that goes into keeping products on hand and available.
What is a Costco Special Event Roadshow
A Costco Roadshow or Special Event is another way to get your product into Costco. The requirements for participating in a Special Event Roadshow are less restricted than becoming a full-blown vendor for Costco. That makes them the perfect vehicle for small suppliers to test-drive their products. It can give you a better idea of how your product will perform and if you are ready to become a regular supplier for Costco.
A Special Event Roadshow is unique in that it gets a lot of attention. Roadshows are held only on the weekend, during Costco’s busiest time and the highest volume of sales. The products are presented in the front of the store or at the end of the aisles where traffic is heaviest.
The products presented are usually not in the main Costco product line. You will not typically find them on the shelves. Sales are limited to the event, so customers are encouraged to buy the product before it goes away.
This may seem like the ideal way to get your product into Costco, but a Special Event Roadshow comes with drawbacks.
- You are responsible for the presentation staff, setup, and inventory. Costco provides the space and the foot traffic.
- You sell the product you have on hand, similar to selling on consignment. Costco does not buy a certain amount of your product and then sell it for you.
- There are fees for a food audit to make sure you comply with health and safety standards.
- You pay a daily fee for participating in the event.
- Costco has a 14% markup charge that you will need to incorporate into your totals.
- With all the costs of fees and setup, you make not make much if any money.
The benefit of presenting your product in a Special Event Roadshow is exposure. People see your product. If your product performs well, Costco may choose to include it in their product SKU’s. Also, if you do continue the process for getting your product into Costco on a more permanent basis, the buyers will know your name and see your sales numbers.
Vendors wanting to know more information about participating in a Special Events Roadshow should contact the Costco Special Event Department.
Keeping Your Product in Costco
Now that you know how to get your product into Costco, you need to know how to keep it there. With a product line of under 4000, there is a lot of competition to be next in line. The constant change ensures that Costco always has new and exciting products for its customers.
The most important thing to remember is that sales are key. It is expected that if you have a food item, it sells at least twenty-five times more at Costco than it would at a regular grocery store. This can be a high expectation for keeping your product in stock. If you missed a deadline for restocking your product, it could be dropped.
Who Is Costco?
Costco was started in 1976 in San Diego, California, under the name Price Club, inside an airplane hangar initially owned by Howard Hughes. It initially sold memberships only to small businesses but then realized the profit of adding non-business members as well.
In 1983, Costco opened in Seattle, Washington. Costco was the first company to grow from zero in sales to over $3 billion in six years.
In 1993, Costco and Price Club merged. The name was changed to Costco Wholesale Corporation in 1997.
Today Costco is the leader in membership warehouse clubs up against big names such as BJ’s and Sam’s Club. It’s private label brand, Kirkland Signature, was started in 1992. The products under the Kirkland Signature brand are designed to be of “equal or better quality than national brands” according to the company’s website.
It is no doubt that Costco has become a staple for shopping in most parts of the United States as well as places across the globe. It offers a constantly changing product line. Its reputation for quality products at a better price, as well as its ability to sell in bulk has helped it grow rapidly. It has sustained its market share even during an economic downfall.
Getting your product into Costco could be the right thing for you. Carefully consider how your product would fit into Costco’s product line. If you think you and Costco could benefit from the sale of your unique product, hopefully, this complete guide will help you achieve your new business goal.
Here are the 6 steps you need to take to have your product placed in Costco.
1. Start with the right questions.) Before you try distributing your product to Costco, you need to ask yourself a few basic questions. Do you need to build demand for your product, or is there already a demand for it? Do you know that Costco would be interested in selling your product? If you can strike a deal with Costco, can you handle the production volume? Do you want to sell directly to Costco, or do you want to license your product to a manufacturer that will handle distribution?
2. Be prepared to profit.) Does your product offer enough of a profit margin for Costco? Can you sell your product at a reasonable enough profit to cover the packaging, shipping, commissions, marketing and wholesale distribution? Check Costco’s guidelines for other fees that you will have to build into the cost of your product in order for you to be able to turn enough of a profit to make the effort worth your while. If you work with a discount retailer, they will try to strip your profits down to zero in order to keep their prices as low as possible.
The typical breakdown of margins are: If a products costs $1 to produce, that product will retail for $4. That product that retails for $4 will wholesale for $2 to distributors and stores that purchase direct. Big box retailers like Costco may offer to pay $1.25 to the manufacturer if the product costs $1 to produce. That is the typical profit margin.
3. Determine if Costco is the right store for your product.) The relationship between you and Costco starts with you browsing their store for competing products. If Costco already has a similar product, it is going to be very difficult to get your product picked up. Spend some time at your local Costco to see what kind of products they are selling, speak to the manager and see if he thinks your product will sell well in their store. Picture in which zone your product would best fit on the shelf and keep in mind that the most precious asset that these big box stores value are their shelf space. Keep this information in mind when you are preparing your presentation to Costco.
If your company is minority or women owned, check Costco’s website and see if they offer specific opportunities for those designations.
4. Pitch your product to Costco.) Decide whether it will be you or a representative to present your product to Costco. Your presentation depends heavily on your strengths as a businessperson as they will most likely ask financial questions and logistics questions.
It’s common for companies to hire a broker to pitch their product to Costco, as it will be more likely that your product will make it to the next stage if the individual pitching your product has industry knowledge or a personal relationship with Costco. The percentage of commission verses, however generally a broker will take around 5% to represent your product to Costco.
We at Mr. Checkout have experience dealing with brokers and know that there are several retail brokers that have poor business practices that can potentially damage your brand. If you are seeking a legitimate Costco broker, please give us a call for a recommendation. It could save you a huge headache and a lot of money.
5. Complete the required Costco paperwork.) Often Costco will have you go through an application process. However, before submitting the paperwork required by Costco, you should contact a buyer at Costco and let them know your intentions. Having a contact inside of the company will potentially move your application more smoothly through the process.
6. Anticipate the need for increased volume.) Having Costco agree to stock your product will most likely mean a significant increase in volume. You should be prepared to ramp up your production and informing your manufacturer of this opportunity.
Having production, logistics and distribution to sync is not only difficult, it requires a significant amount of time invested in customer relations. Also, Costco may have stipulations in the contract that may penalize you for delays in shipping and production. Have an attorney explain all contracts to you if you don’t understand the terms.
If you’re looking to sell your product to Costco, be sure to thoroughly assess the marketplace, carefully prepare for production growth, and take full advantage of resources available to help you grow your business.
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