Since 1983, Costco has built its reputation as the place to go for big items at low prices.
The warehouse club, which launched in Seattle, Washington, has become an international force.
As of 2018, Costco has 768 warehouses worldwide, and has more than 94 million members across
the globe.
Shopping at Costco is an experience unlike any other.
Where else can you shop for great deals, grab a cheap lunch, and fill up your gas tank in
one place?
But those great deals aren't for everyone.
Costco's famously low prices are only available to members who pay to have access to the warehouse
club.
For $60, a Gold Star Membership gives members exclusive access to shop at any Costco location
worldwide.
In addition to shopping privileges, upgrading to a $120 Executive Membership makes members
eligible to receive 2 percent cash back on qualifying purchases.
And those membership fees are going a long way to help the company's profit margins.
Because Costco earns so much income from membership fees, there's less incentive for the business
to mark up prices like its competitors.
Costco warehouses are massive, which is why it's so easy to lose an entire afternoon shopping
at one.
The average Costco store is nearly 145,000 square feet in size, but even with all of
that enormous square footage, Costco offers a limited number of product choices compared
to their retail competition.
A typical Costco warehouse is stocked with just 4,000 different products for sale, compared
to about 30,000 at most supermarkets, and 142,000 at Walmart SuperCenters.
Because they deal with a limited number of brands, Costco is able to buy their products
in bulk at a cheaper price and pass the savings along to their customers.
"We come here not as conquerors, but as liberators, to return control of this city to the people."
In addition to providing a positive shopping experience for their members, Costco is committed
to making sure their employees are happy when they come to work each day.
The company believes that keeping the people who work for them happy helps reduce turnover
and instances of employee theft, all things that can cost the company money and drive
prices up.
In addition to providing a robust benefits package that includes health insurance, stock
purchase options, and a retirement savings plan, the company shows their employees that
they are valued by paying them at a higher rate than other well-known retailers.
All of the company's dedication to its employees is paying off.
A 2018 Indeed survey of top-rated workplaces named Costco number one when it came to compensation
and benefits.
If you've ever wondered why you've never seen a Costco ad, it's because there aren't any,
a fact which saves the company around 2 percent in costs each year.
The company does not have a public relations staff and spends next to nothing on traditional
advertising compared to their competition.
Meanwhile, Amazon's 2017 advertising and promotions budget was $6.3 billion, Walmart spent $3.1
billion in 2018, and Target had a 2017 budget of $1.4 billion.
The money Costco saves on marketing allows them to sustain prices that are lower than
the competition and that keep their loyal customers coming back.
Costco does send direct mail to potential new members and promotional coupons to current
warehouse members, but the business primarily relies on word of mouth to expand its reach.
The brand also gets a boost from high profile celebrity fans like Kris Jenner and Jessica
Alba, and social media accounts dedicated to Costco lovers like Costco Does It Again.
Even Khloe Kardashian loves Costco.
"I love Costco!"
"You really love Costco?
Because I really love Costco.”
“YES!”
Customers don't come to Costco expecting to see fancy store displays and beautiful product
staging.
Costco locations around the world are known for being warehouses with pallets of products
stocked as far as the eye can see, and their millions of members are okay with that.
In fact, the company's bare-bones design model helps them save money, and in return, offer
the low product prices that their members have come to expect.
Costco saves money by not hiring dedicated staff to unpack boxes and create elaborate
product displays.
The items are essentially unloaded directly on to the warehouse floor with little regard
for aesthetics.
In addition to saving money on staff, Costco's no-frills business model allows warehouses
to save money on operational costs as well.
Their energy efficient warehouses use skylights and take advantage of daylight.
As a result, they don't have to use as much electricity, which can cut into their profit
margin.
A trip to Costco isn't complete without a visit to the food court, which is arguably
one of the best places in the store to find great deals.
The menu is loaded with inexpensive options including pizza, hot dogs, and salads that
help the warehouse club lure in shoppers.
One of the most popular items on the food court menu is the long-standing hot dog combo.
$1.50 gets you a 1/4-pound hot dog with a 20 ounce soda.
The idea was first tested In 1984, when Hebrew National set up a hot dog cart outside of
a San Diego store and sold their $1.50 combo.
The combo has been so successful for Costco that they have kept the price the same for
over 30 years.
Similarly, the price of the $9.95 pizza hasn't changed since it landed on the menu in 1989.
"I mean, a dollar fifty for a quarter pound hot dog.
And a drink!
Tres bien, right?"
The company isn't making much of a profit by keeping their food court prices so low.
In fact, the hot dog meal is well-known as a loss leader.
However, the company views the food court as an added value benefit to their members.
In addition to making hungry shoppers happy, the inexpensive meal options help members
justify the cost of their membership, and makes Costco a shopping destination for the
entire family.
Plus, those frequenting the food court for a super-cheap lunch are probably spending
plenty in the store, too.
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