Making the decision to do business with one of the most successful retailers in the country isn’t one of those quick ideas that comes over coffee and a bagel at your local Starbucks. I’m sure you’ve been staying up at night dreaming of your product prominently displayed at Costco with thousands of members clamoring to grab the last item before they’re gone. No doubt you’ve rehearsed your response to Costco’s frantic phone call for more products, offering anything to get one more shipment. Calm and undisturbed, he pauses before letting them know that he’ll see what he can do and, at the same time, asking for better terms.
Fortunately this has happened and could happen to you. You may never get invited to Jim Sinegal’s house for Christmas dinner, but that doesn’t mean you’ll never succeed selling your goods to Costco if you’re prepared.
Thousands of businesses just like yours have turned to Costco and successfully sold their products for years. What makes the difference between the companies that are inside and those that are outside? Successful companies had the following in common:
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They were prepared: They did their homework and they had a plan. They knew what they were getting into and had already made the necessary adjustments for success.
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They hired a company or person who had experience selling Costco to fill in the gaps in their plan and advise them through the process.
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They understood Costco’s business model and that Costco would not change their rules even for them.
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They were in the right place at the right time with the right article.
Will your product be the next great item at Costco? Only time and preparation will tell. To get you started, I’ve outlined the first 11 steps that are crucial to preparing for a Costco meeting.
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Product Selection – Determine whether to offer a single product or multiple products. Sometimes, to create the value needed to meet Costco standards, you may need to bundle products. Product bundling can also help with your distribution network as you have created a unique and different item number.
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Pricing: Research your distribution network to determine the lowest selling prices on the market for the products you’d like to offer Costco. Be sure to check all prices and products offered for sale. If you don’t, you can be sure Costco will. They will do their research, which means you should too. Create a possible pricing structure taking into account the prices currently being offered.
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Distribution Effect: Determine how selling products to Costco at reduced prices or added value will affect your current distribution network. Distributors and merchants can sometimes become difficult if they think you are undermining them by offering the same products to Costco.
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Packaging – Determine what type of packaging you will offer Costco. Costco is very specific in its packaging requirements. They usually require a single display stage. Get quotes from a couple of different companies on the graphics and packaging.
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Logistics: Take a look at your current logistics capacity to determine if you can serve a large customer like Costco. Knowing your capacity will help you understand what your sales expectations will be. Review Costco’s routing guide to make sure you’re including all the necessary aspects when discussing logistics.
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Other costs: Review and take into account these additional costs.
1. Customer Service Support: Do you have the phone support required to handle the influx of customers or will you have to hire a company to handle this aspect?
2. Costco EDI (Electronic Data Interchange): Quote EDI to include in your financials.
3. Promotional costs: Will you want to participate in any promotion? The various promotions at Costco are where the sales really explode and need to be planned accordingly.
4. Shipping: Costco will require a shipping cost to your warehouses. You need to calculate the average cost and include it in your cost structure.
5. Returns and defects: How will you manage the part of return and defects. This can be expensive and needs to be carefully considered. -
Potential Sales Through Quantities – Based on the Costco divisions you’re looking at, create a few scenarios that show sales potential quantities. Costco has 3 divisions in the US and one international division:
A. Costco wholesale,
b. costco.com,
vs. Costco Traveling Expo,
d. Costco Canada,
my. Costco.com Canada,
F. Costco Mexico,
gram. costco uk,
H. Costco Taiwan,
I. Costco Japan,
d. Costco Korea. - P&L: Create an item P&L using the above information to determine the feasibility of the program. You never want to do this after the deal has been done. Going into a program and finding out after being successful that you are losing money will be devastating.
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Costco: Decide which division to contact first. Make initial contact with the buyer and gauge interest. You will probably need help here, as communicating with Costco shoppers can be very difficult, if not impossible. If there is enough interest, set up an initial meeting at Costco headquarters in Seattle WA.
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Pre-Meeting: Final decision on at least two, no more than three packaging options. Determine your options, as you’ll only have about 30 minutes or less to pitch your idea to Costco, and you’ll want time to discuss your next steps. Make your final decision on the cost price to include in the presentation. Create your presentation and print more copies than you think you’ll need. Confirm your meeting one week before the date.
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Meeting: In your presentation, be thorough, but not over the top. Keep your tone smart and to the point. Be prepared for Costco to have some questions, not only about your product, but also about you and your company. Know your competition and your market. They will test you. Be sure to pin down next steps and follow up before leaving the meeting.