If I asked you to name the leading packaged goods brand in the United States with over $58 billion in sales, my bet is you’d be guessing for a long time. This single brand outsells Hershey’s and Kellogg’s and yet is available at only one bricks and mortar retailer. That store chain is Costco, and the brand is Kirkland Signature, which has become the private label brand king. You can buy Kirkland Signature tires, vodka, pizza, and cage-free eggs to name just a smattering of more than 350 different products.
Costco has succeeded where many retail private label brands just eke out a small amount of income in a category. For Costco, Kirkland Signature sales now make up a quarter of their total annual revenue.
Every company with multiple product lines has to make a basic choice: Be a branded house, where all the products are under one name, or be a house of brands where different brand names fend for themselves against the competition. The latter is obviously far more costly from a marketing standpoint yet has its advantages. Anheuser-Busch is a great example of a house of brands. Sam Adams actually has more product variety than Anheuser-Busch but brands them all under the Sam Adams name. For smaller brands this is far more efficient, as long as their product categories don’t vary the way they do for, say, Procter & Gamble and the many packaged goods product lines in their portfolio.
The private label brand is a different animal because they typically do little advertising and rely on established store traffic from customers searching for well-known brands, and then seek to entice the buyer to switch to their store brand. The most common differentiator is price, of course, which leads to the ultimate question of quality versus value. So, often, the Achilles’ heel of a private label brand is its quality. Sure, a buyer can save some money, but if the product experience is weaker, they’ll try it one time and return to a more expensive name brand for the quality they expect.
This is where Costco has a different strategy from many other private labels. They have emphasized product quality in finding sources for their diverse product line. Their products are often compared to leading brands. Rumors abound (and don’t appear to be discouraged by Costco) that Kirkland Signature vodka is made by Grey Goose or that Kirkland Signature golf balls are made by the same manufacturer that makes the super-premium ProV1 brand for Titleist. True or not, Costco has built a perception of quality into the Kirkland Signature brand name that works across hundreds of products and dozens of categories.
Other big retailers like Walmart and Amazon have had mixed success using multiple private label brands. Walmart still has dozens, and Amazon is estimated to have hundreds. Interestingly, Costco’s one brand strategy has helped build a sense of exclusivity for the brand. You can only get Kirkland Signature products at Costco, which becomes another reason to shop at their store. This in turn empowers Costco members to feel a sense of privilege and shopping savvy for choosing Kirkland Signature products. And that is branding at its very best.