November 10, 2009

Costco Wholesale drops Coca-Cola. Why?

The issue of Costco Wholesale dropping Coke from their buildings is unfortunately a non-event for both parties. Yes, Coke will probably get back into Costco in the future and Brands do matter! This action occurred because of Costco’s demands, Cokes view of Costco, and consumer shopping patterns in clubs.
Costco Wholesale has long held that Coke is not supporting their club format and business model. For example, this is not the first time Costco has dumped a Coke item and it will not be the last. With the big intro of Coke Zero, Costco brought the item in for a few weeks and quickly deemed it not acceptable in unit movement and dropped it from their buildings. Coke just does not do the things that Costco would like to see in order to promote the drink section and the Club Channel at Costco.
Costco members shop regularly in other store formats and will find their specials and Coke fix waiting for them as usual in these locations. Consumers don’t like shopping this aisle in club, the packs can be heavy, and they are looking for specials and loss leaders found in other formats not offered in Costco. Consumers will continue to consume the same amount of Coke, if not more in the coming year regardless of the Costco situation.
When you add to all these factors the inside sales numbers that Coke tabulates on Costco you start to understand why this issue reached this level. Coke is losing very little in this deal. Costco is the highest volume club retailer but when compared to Sam’s Club, Coke sees a company with less than 20% of the sales volume in Sams. Coke also wants to continue to service the locations off their trailers and not run the pallets through the Costco redistribution warehouse nor do they plan on offering any special packs for Costco when they are enjoying such sales success at Sams due to the high degree of product purchased for resell. Brands do matter and the Costco members will continue to enjoy their Coke products just like they did before this event – purchased from a store that is not a Costco Wholesale location. Comments to tim@timforrest also, follow me on Twitter
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