Smart Marketers, Smart Wine People: Costco, Inc.

costcoI wanted to hate these people. I wanted to slam them for being hacks and opportunists.

Unfortunately, they’re doing a way better job than I thought.

Costco‘s warehouse stores are one of the biggest of the Big Enemies for independent wine retailers like me. Their prices are almost guaranteed to be the lowest in the area, so they usually undercut the smaller independent retailer, and duke it out with the big chains (Total Wine & More, Bev Mo) for market supremacy.

On the down side, Costco doesn’t have nearly the selection of the big chains, or even of a good-sized independent. Even with 145,000 square feet in most of their warehouse stores, only 5,000 or so are devoted to wine, beer and spirits.  The trade-ff, though, is that consumers gain the convenience of picking up the wine for tonight’s meal while they’re shopping for the meat and cereal.

So I just read an interview that makes Costco look pretty darn good. It was published in Shanken News Daily, an online publication that features news and research on the wine, spirits and beer business. SND was talking to Annette Alvarez Peters, who heads the wine/beer/spirits buying team for Costco. I assumed that their sales would be impressive — yes, they did $2.345 billion (yes, with a “b”) in global beverage alcohol sales in 2010, and are projecting a healthy increase for this fiscal year. I also assumed they weathered the recession well, because in down times buyers seek out bargains (real or perceived).

But I didn’t expect this: Costco’s wine buying team (and it is a team) is manned by Alvarez-Peters and 10 buyers. Each has the know-how to research and select inventory items, which requires indepth knowledge of wine regions, varietals, consumers’ shifting preferences, etc. These 11 folks have a combined 254 years of wine/alcohol experience — thats sounds impressive to me! And they have an impressive amount of wine education: Level 2, 3 and even 4 certification from the Wine and Spirit Educational Trust.

So these men and women know a thing or two about wine. How about their marketing skill? Here’s a quote from Annette that I liked:

With an average inventory of less than 200 alcoholic beverage items, we know we can’t be everything to everyone. But we think we can offer our members a fantastic shopping experience from the moment they walk in the door. We constantly rotate items in most categories—bringing in new products to create a treasure hunt atmosphere. That creates a sense of urgency for our members to buy the item when they see it, as it may not be there the next time they shop.

Damn. They’ve figured out how to make a limited selection work to their advantage.

You can see why Costco, Inc. is eating a lot of retailers’ lunch. They’ve got smart people doing smart stuff, and they’ve got a massive organization behind them that gives them huge buying power.

So pray with me — pray that Costco won’t be coming into my neighborhood anythime soon (or at least until I get out of the wine retail business). Cheers!

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