Costco’s Secret to Keeping Kirkland Signature Prices Low

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Solving the problem from multiple fronts. 

We all know the popular saying: “You can have it good, or you can have it cheap. You can’t have both.”

Whoever coined this saying probably didn’t shop at Costco. At least, that’s the consensus of Costco fans when it comes to their in-house Kirkland Signature brand of goods.

From olive oil to batteries to toilet paper, people tend to rave about anything with that Kirkland label. If fans are to believe, the products are not only great for your finances, but they’re of name-brand quality (or better, in some cases).

But how is it that Costco manages to make such high-quality products while still keeping prices so low? Is it really just a matter of the store doing as its customers do: buying everything in bulk?

As it turns out, Costco’s method of keeping Kirkland products affordable isn’t (entirely) about getting that wholesale discount. No, there’s a lot more to it, both behind the scenes and on the shelves.

A focus on efficiency

There are two parts to making money: overhead and sales. You need to keep your own costs low, while making enough sales to cover your costs — and, ideally, with a bit of profit, too.

Costco’s secret weapon to keep overhead down? Efficiency.

Everything about a Kirkland Signature product is designed to be as efficient as possible, right down to the packaging. In fact, a common anecdote about Costco’s methods is how it redesigned the packaging of its Signature cashews to fit more products on their trucks.

Little things, like using your transport space more efficiently, can have a remarkably big impact on your bottom line.

But it’s not just the packaging. Even the process of selecting which products to sell under the Kirkland banner — or in the store at all — is efficient and pragmatic. For instance, Costco tends to only stock about 3,800 different products at a time (competitors can easily stock ten times that, or more).

Additionally, the company doesn’t seem to be shy about ditching products that simply don’t work. If its house-brand products can’t compete with brands that already corner the market, they pull the products and move on. (Ever wonder why there’s no more Kirkland cola? It couldn’t compete with Pepsi.)

Familiar brands, new labels

Of course, no matter how low you keep your overhead, it comes down to sales in the end. Some companies go full-bore behind having the lowest prices, no matter what it means for quality — you know who you are — and rely on high sales volumes to keep their margins in the black.

Costco, on the other hand, takes a more balanced approach.

Does Costco rely on wholesale discounts to keep their costs low? Absolutely. But instead of relying solely on volume of sales, it has focused more on building powerful brand loyalty that keeps customers coming back time and again. (Ask any Costco fan about their favorite Kirkland products and you’ll learn a lot about building a strong brand!)

A big part of how Costco pulls this off — without excessive overhead — is to put its own labels (or, in some cases, joint labels) on products from popular brands. For example, it’s an open secret that Duracell manufactures Kirkland Signature Batteries. And Kirkland tuna comes from Bumble Bee factories.

By partnering with already established manufacturers, Costco doesn’t have to dump its own money into research or production facilities. This keeps costs down while still ensuring customers get a tried-and-true product.

Work smarter, not (always) cheaper

Costco fans are a loyal bunch. And it makes sense, when you consider the pains the company goes through to keep that loyalty. One of the ways it’s done this is by establishing their Kirkland Signature brand as a high-quality name-brand alternative.

Costco also managed to do this while keeping its products affordable — or at least competitive. You won’t find Kirkland Signature items in your favorite coupon app, but it still manages to go toe to toe (or price tag to price tag, in this case) with other comparable retailers.

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The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.Brittney Myers has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Costco Wholesale. The Motley Fool has a disclosure policy.

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