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Welcome to Costco, the world's third
largest retailer. This is the place
where you walk in with the intention to
stock up on 48 rolls of toilet paper and
instead leave with a sixperson
inflatable hot tub. They also make 73%
of their profit before you even put a
single item in your cart. And on the
surface, it seems simple. Sell in bulk,
keep prices low, charge a membership
fee. But behind the concrete floors and
giant tubs of peanut butter is one of
the most quietly brilliant retail
strategies in the world. A company whose
private label outs sells entire
multinational brands. And a company who
is managed to become beloved by both
dads who stock up on industrial-sized
everything for their suburban kingdoms
and Gen Z's who split bulk groceries
with their roommates to save money. But
how does Costco manage all this success?
Because I figured there's got to be more
underneath the surface than the typical
things that we know and love about
Costco. So I dug into it and in this
video we're unpacking the whole Costco
playbook. how the membership model
unlocks something so much bigger. Why
Kirkland is more than just a typical
private label brand. How Costco earns
your trust and your impulse buys and
whether this warehouse giant can keep
its magic in the digital world. Let's
discuss.
[Music]
First and foremost, you guys know I'm
not here to mess around. For those who
have never been, or those who have been
but want to vicariously feel the Costco
magic, let's start with the store
experience. You enter the massive
warehouse style retailer. You slash your
membership card. That's right. I became
a member for this video, but also it was
just a matter of time. And are greeted
by huge carts, warehouse lighting,
concrete everywhere, the smell of
rotisserie chicken, and Michelin tires.
Sounds kind of incredibly weird now that
I say it out loud, but it's weirdly
comforting. Costco has no frills,
minimal signage, and pallets stacked to
the high heavens with vast amounts of
inventory that only forklifts can move
around. Something you might notice right
off the bat is that most things here in
Costco are huge.
Selling in bulk and in large quantities
are a famous part of Costco's business
model, but more on that later. Now,
aside from this brutalism chic vibe that
Costco has curated, they are also famous
for the treasure hunt. They reel you in
with essentials at affordable prices,
some of which actually lose money for
the company and then entice you with all
of these other weird interesting things
to drive impulse buys. The most famous
Costco loss leader that gets people in
the door, the $150 hot dog and soda
combo. This combo has been a $1.50 since
the 80s. And Costco management has made
it very clear they are not going to
change the price despite increasing
prices and inflation for the last 40
years. And this isn't just a cheap
wiener. It's an iconic part of the
Costco experience. Even as a little kid,
I remember coming into Costco with my
parents and my brother, shopping, and
then finishing with one of these bad
boys. $1.50 every time. And it's become
a bit of a cultural phenomenon. So yes,
I am literally eating Costco's profits,
but it works. It gets people in the
door. And once you're inside, that's
where the real treasure hunt begins. I
joke that Costco is the only place where
you can buy an industrialsized tub of
mayonnaise, a diamond ring, a 6-ft tall
teddy bear, and prescription glasses all
in one place. But the common thread
across all of that randomness, they are
all good value for the money. And that's
kind of the Costco promise. And finally,
who are all these shoppers around me
that I'm desperately trying to avoid to
film this video? Well, the stereotype is
that they're soccer moms coming here to
buy 48 rolls of toilet paper, which
isn't untrue. The average Costco
customer is aged 39 to 55, household
income over $100,000, married with kids,
has a 4-year college degree or higher,
and spends $100 or more per trip to
Costco. However, Costco is actually
proving to have some multigenerational
appeal, which we'll talk more about
later. But one thing that many Costco
shoppers have in common is high brand
loyalty, especially to Costco's wildly
successful private label brand, Kirkland
Signature. So, let's dive into Costco's
business model, how they make money
through product strategy, and the
underrated success of their own private
label. For a company that sells
superersized everything, Costco makes
surprisingly little profit from the
stuff that's in your cart. Not so
surprising. Retailers that have low
costs generally do so by accepting lower
profit margins. But when I dug into it
further, I found something very
interesting. Costco's public pricing
rules say that they will only take a
maximum of a 14% markup on name brand
products. 14% is already much lower
compared to traditional retailers who
typically mark up name brand products
anywhere from 25 to 50%. However, for
their private label, Kirkland, which
they can produce at lower cost, they
allow themselves to take just one more
percentage point at a maximum 15%
markup. Now, this might not seem that
significant, but there's a lot to unpack
here. First of all, the public price
discipline, literally stating that they
will not take a higher markup in these
percentages creates a ton of trust
within their customer base. Costco would
rather mark something low, move it off
the shelves in huge quantities, keep you
coming back, than to mark it up higher,
and having it sit around collecting
dust. And this kind of breaks so many
rules of retail. The co-founder Jim
Sagal put it perfectly in a recent
interview when he said, "Many retailers
look at an item and say, I'm selling
this for $10, but how could I sell it
for $11?" Costco looks at it and says,
"How can we get it to $9 and then later,
how do we get it down to $8?" But if
Costco is not making fat profit margins
on its products, where's the profit
coming from? If you shop at Costco, I
bet you can guess. Their real profit
driver is membership fees. As of last
year, Costco reported having $137
million members. Memberships range from
$65 for the gold star in business to
$130 for executive status. And unlike
the $1.50 wieners, these membership
prices have increased with inflation.
Now, I knew the membership fees were a
big part of Costco's business model
because I'd read about the company
before out of interest. But I didn't
realize just how staggering these stats
were until I did the research for this
video. The membership fees contribute
only about 2% of Costco's revenue, but
account for 73% of their gross profit.
Crazy. So, to connect the dots, cuz I
know I just threw a lot at you, Costco
keeps prices aggressively low, builds
trust with its razor thin markups, gets
you hooked on the experience, and then
makes the most of its profits from those
annual membership fees. Okay. Okay.
Super thin margins, low prices, but
still, Costco's revenue last year was
$254
billion. Once again, third largest
retailer in the world, only behind
Walmart and Amazon. So, they're moving
some serious volume. They must sell a
ton of different products, right? Wrong.
Again, most Costco locations only stock
around 3,700 different products, which
is so minuscule for how big these
warehouses are. Compared to a Walmart
Super Center, which sells about 140,000
different products, the strategy is
instead of overwhelming their customer
with so many different choices, they
choose one, two, three, maybe four
different brands to sell alongside their
private label version. And they sell it
in volume. And guess what? This gives
Costco extreme negotiating power. If the
shelf only has two spots and one of them
is already taken by Kirkland, that means
that every other brand is fighting for
that one remaining seat at the Costco
table. Needless to say, this gives
Costco an enormous amount of leverage.
Brands know that landing on the Costco
shelf can mean millions of dollars in
volume and long-term customer loyalty.
So, they're often willing to lower their
wholesale prices for Costco, create
better packaging formats, or even tweak
their formula just to make it in.
Another way Costco stays honest, they
don't charge these brands for the shelf
space once they're in, like many other
retailers do. If a brand is here, it's
because they presented the best deal to
Costco and earn their way in. Limited
selection also creates operational
efficiency behind the scenes. With fewer
products to manage, Costco can turn
inventory faster, negotiate better
shipping rates, reduce waste from
expired products, and simplify
everything from restocking to staff
training. So, while other retailers are
playing inventory Tetris by selling
thousands and thousands of SKs, Costco
is moving massive volume of the same
products over and over again. It is
retail efficiency at its finest. This
limited skew model and negotiating power
is something that we've seen before.
Trader Joe's stocks limited products to
avoid giving the customer decision
fatigue. Arowan has extreme negotiating
power since products have to pass an
extremely high bar of health to even be
stocked at the stores. I think of Costco
as sort of a combination of the two. So
to sum up Costco's business model at a
high level, you pay just to walk in the
door. Those membership fees create
stable recurring profit, which lets
Costco keep prices low, which builds
trust and loyalty within you, the
customer, which leads to bulk buying,
which gives Costco massive supplier
power. And this whole flywheel fuels a
sense of value and discipline around the
Costco brand that is pretty unmatched in
retail. And this isn't just an American
phenomenon. Costco has cracked the code
in 14 different countries by keeping its
core model intact while adapting to
local tastes. In Japan, you'll find
matcha KitKats in smaller bulk sizes for
smaller homes. In Korea, you'll find
Bulgi bake instead of chicken bake. I'm
probably pronouncing that so wrong.
Bulgi. I should have looked up the
pronunciation before this video. Bulgi.
Bulgi
in Canada. Poutine in the food court, of
course. And honestly, I want to go back
to Iceland just to see what Icelandic
things they have in the Costco that's
about 7 milesi south of Raikyc. Seems
like there's some fun stuff there. I
looked it up. But across all these
countries, same membership model, same
Kirkland quality, same concrete
aesthetic, but with enough local flavor
to feel authentically Costco no matter
where you are. You trust them to save
you money. They trust you to renew your
membership. Everybody wins. But there's
one more piece of the puzzle that we got
to double click on, and it's probably my
favorite part of their whole strategy
besides the hot dog. But my second
favorite part of the Costco strategy is
hiding in plain sight, and it might just
be their biggest unlock of all. Let's
talk about Kirkland. Costco's beloved
one-sizefits-all. Kirkland signature
private label brand didn't exist before
1995. Before that, it was kind of a
branding free-for-all. Costco had a
whole collection of madeup names across
a bunch of different products
categories. one brand for paper towels,
another for snacks, another for
stationery. They would just create a new
label whenever they launched a new
product, which is pretty standard in
retail to have a lot of different
private label brands. So, why did they
change to just Kirkland? In a recent
interview with the Wall Street Journal,
co-founder Jim Sagal shared the story
that sparked the Kirkland revolution. He
was visiting a warehouse and asked the
manager if a shipment of the Costco
private label brand legal notepads had
arrived. The manager said no. But when
Jim went to the back to check for
himself, he found the legal notepads
branded Pinnacle sitting right there.
The kicker, the manager didn't even
realize that Pinnacle was one of
Costco's brands. Cue the light bulb
moment. If people inside Costco didn't
even recognize their own private label
brands, how were customers supposed to
build brand trust or loyalty? So, Sagal
made the radical call to consolidate all
of their private label brands under one
master brand. One name, one standard,
one identity. Kirkland Signature named
after Costco's original headquarters in
Kirkland, Washington. This might seem
like the obvious move within the context
of that story. But at the time and even
now, it actually goes against every
playbook in retail. Successful
department stores at the time like Sears
were going in the opposite direction,
launching even more private label brands
to be able to target different
demographics and price points. Even
today, Target has over 45 different
private labels like a new day for their
clothing, Good and Gather for their
food, each with its own curated
aesthetic. Walmart even has over 20
private label brands. So, why do
companies do this? Well, there are a
number of reasons. One, multiple brands
can help segment identities and position
each brand a little bit differently to
appeal to different demographics. Two,
it can also help hedge reputational
risk. So, if a Target food product flop
happens, it doesn't taint your image of
Target's apparel line, let's say. But
Costco said, "Nope, one brand to rule
them all." And it has worked
spectacularly well. Today, Kirkland
Signature accounts for about a third of
Costco's revenue, generating $86 billion
just last year. That is more than
Proctor and Gamble alone, more than
Craft Time. It's a brand that customers
know, love, and most importantly trust.
But why is Kirkland so trusted? Because
when we think of private labels, I think
a lot of us think generic, cheaper,
slightly sad, lower quality knockoff of
the real thing. And this is where
Kirkland flips the script. Kirkland's
goal is not just to offer a lowerc cost
alternative. The goal has always been to
match or beat the level of quality on
name brands. And sometimes Kirkland is
the national brand in disguise. Some fun
examples. Kirkland batteries are made by
Duracell and they also sell Duracell.
Kirkland coffee famously manufactured by
Starbucks. There's been a long-standing
rumor that Kirkland vodka is just
rebottled Greygus. That one's been
debunked sadly, but the fact that it
holds up in a blind taste test against
Greygus, that's saying something. And
they don't sell it at this Costco, which
is lame, but I thought you guys should
know cuz Greygus gets talked about a
lot. And Costco doesn't try to bury the
Kirkland brand on the bottom shelves.
Nope. It is right there next to the name
brand version that you know. And in many
cases, customers choose Kirkland because
they trust it more. Here are some fun
facts and examples of Kirkland products
that have gained an extra cult
following. Kirkland is the largest
seller of cashews in the entire world.
Not Planters, not Blue Diamond,
Kirkland. Their nut game, famously
strong. They also sell $1 billion of
toilet paper every year. $1 billion. And
yes, there are Reddit threads comparing
the performance of Kirkland toilet paper
to Cottonell and Charmin Ultra. People
have opinions. The Kirkland protein
bars, which are basically Costco's
version of a Quest bar. Fitness
influencers love them.
Kirkland golf balls, which are so good
and so cheap that Tidalist actually sued
Costco, saying they must have copied
their provula after the balls from
Costco got so much praise from pro
golfers. Costco actually counter sued
Titalist and then it was settled out of
court. So, who knows? But, uh, those
must be some good balls. The Italian
olive oil that's actually made in Italy
and passes authenticity tests every
single year. the Kirkland Wine
Collection, which is produced by some
very reputable wineries in Napa and sold
for a fraction of the price. They don't
sell wine at this Costco. Once again,
kind of lame, but all of this builds
into something pretty rare. A private
label brand with a personality and a
very high level of quality. Kirkland
isn't the shadow brand. It's front and
center right there next to the name
brand. And for many Costco members, it's
one of the main reasons that they keep
coming back. They don't think discount.
They think this is probably the best
deal in the store. Kirkland's quality
and value is often cited as the number
one reason that shoppers renew their
Costco memberships year after year.
Crazy impressive stat to show for it.
Costco's membership renewal rate sits at
almost 93% in the US. That level of
loyal customer retention is a rate that
so many businesses could only dream of.
And you know what? Count me in as a
Kirkland stand. I can't think of any
other private label. Maybe Trader Joe's.
Definitely Trader Joe's where I'm super
stoked to see it. One of my friends
brought over a Kirkland bottle of wine
to my house for me a couple years ago. I
was thrilled to see it. My parents have
bought Kirkland everything since I was
the size of a little chicken nugget. I
love Kirkland now at 27. I loved it when
I was 10 and running around the wide
aisles and riding the shopping carts
with my brother. And I am sure I will
still love it when I'm 50, probably even
more. Which is a good segue into our
next section. Now that we know the
business model, we know the hot dog, we
know the private label playbook, how is
it that Costco in its stereotypically
boomer fashion in all of its concrete
glory still manages to be beloved by all
generations, young people, older people,
families, doomsday preppers, even Tik
Tockers. Let's talk about how Costco is
weirdly cool now and what that means for
the company's future. It makes perfect
sense to me why Trader Joe's is
especially popular with young people
with its playful, colorful signage, its
fun, quirky snacks, its famously super
friendly employees and Hawaiian shirts
and affordable prices. Costco, on the
other hand, is concrete. It's
fluorescent. It's no frills. It's not
exactly tick tock bait and yet it's
happening. Gen Z of all groups has
become one of Costco's fastest growing
customer segments. Of course, this is in
part because Gen Z are becoming adults
of grocery shopping age. But there's
more to it than that, and it's not just
the hot dog. With food prices still
elevated near the peak levels that we
saw in 2022, 2023, Jenz has gotten
creative. They're fighting inflationary
prices by buying in bulk and then
splitting the bill later with their
roommates, friends, and family. A recent
study by Advantage Solutions found that
nearly 40% of shoppers aged 25 to 34
report splitting bulk groceries. this
way with anecdotes from frat bros who
pile into a car together and do a weekly
run to Costco and then split the bill
later on via Venmo. It's kind of cute if
you think about it. But that's just one
piece of the puzzle. Costco's brand
image is changing, too. We know that
Costco has always been about delivering
a high-quality product at a good price,
but it seems that Gen Z is just now
especially catching on to that. I say
this as though I'm literally not Gen Z,
but I'm a boomer at heart. According to
a recent poll, Gen Z adults are more
frequently describing Costco with the
words premium, visionary, and customer
ccentric. In fact, Gen Z now views
Costco's brand as higher quality than
the general adult population does, which
is kind of amazing when you think about
the fact that Costco's vibe really seems
to cater to people with like four kids.
Also, when I said that Costco isn't
exactly Tik Tok bait, turns out kind of
actually is. A video by the deal guy
titled 10 new Costco deals you need to
buy in July 2025 posted 9 days ago 1.1
million views. Must be a crazy outlier,
right? Wait, what? What's that? Another
video by the deal guy titled 10 things
you should be buying at Costco in 2025
posted just 2 weeks before that other
one. Also 1.1 million views. Binging
with Babish trying every Kirkland
Signature Product. 1.6 million views in
1 month. And finally, Bobby Parish,
Costco shopping guide for 2025. 2.1
million views in 7 months. Yes, these
videos are being posted by huge channels
with millions of subscribers. But even
still, these Costco videos are
outperforming the other videos on those
channels. So, Costco has more cultural
cache than I think a lot of us give it
credit for, with its bulk grocery
reviews and shopping guides generating
millions of views. I don't know if you
guys find this part as interesting as I
do, but it's my job and I think it's fun
to find those outliers. And I think it's
so cool that Costco is one of them. Now,
a lesser discussed part of what I think
makes Costco so cool across generations
is its product strategy. Unlike Trader
Joe's, which deliberately cork
trendiness with its seasonal drops in
quirky snacks, Costco isn't trying to be
cool. But then you look around and
realize, is that Graza olive oil? Are
those Birkenstocks?
Is that Dyson? Costco is low-key kind of
cool and they've kind of mastered the
quiet slip-in of the trendy product next
to the generic thing. So, while the main
drivers that get people of all ages in
the door are highquality items at good
prices, the trusted Kirkland brand and
of course, it doesn't hurt that Costco
also does limited time runs of buzzy
specialty item brands that help create
that treasure hunt experience. It helps
drive urgency and excitement to get you
to go to Costco now instead of waiting
until next month. And it also creates
fun Costco haul videos. In this product
strategy, whether you're a costconcious
college student or, you know, a dad
feeding a family of five, I think they
hit the sweet spot between value,
discovery, and quality. And something
about them not trying to be cool just
makes them so cool. So, we've covered
the business model. We've covered the
Kirkland empire and the
multigenerational appeal. Here's the
million-dollar question, the $254
billion question. Can Costco keep this
magic going forever? Because in my
research, I did find some potential
challenges on the horizon. First up, the
online shopping revolution. While Amazon
and Walmart have gone allin on grocery
delivery, Costco has been, let's say,
thoughtfully cautious with their
e-commerce approach. They do offer some
same day delivery through Instacart and
2-day delivery on their site, but it's
clunky, it's limited, and it's clearly
not the main event. And maybe that's the
point because so much of the Costco
magic happens within the warehouse. The
treasure hunt, the free samples, the
impulse buys, that weird satisfaction of
lugging home a bunch of highquality golf
balls, I guess. How do you replicate
that digitally? But Gen Z and younger
millennials increasingly expect
convenience. They want their groceries
delivered. They want to be able to shop
on their phones. And they want it now.
In my opinion, Costco's challenge is
evolving their digital experience
without losing the warehouse magic that
drives loyalty. And then there's the
competition heating up on multiple
fronts. Sam's Club is investing heavily
in Scanand Go technology. Amazon Prime
offers a membership for roughly the same
price as a Costco membership, and
obviously they ship very, very quickly.
Even traditional grocerers are launching
better private labels in bulk options.
Plus, there are natural limits to
growth. Costco works best in suburban
markets where people have cars and
storage. These ideal locations are not
infinite, especially within the US
market, which is already saturated. But
here's why I'm not betting against
Costco. They have proven remarkably good
at evolving without changing their core
identity. The Kirkland brand alone is
worth billions. Their supplier
relationships are incredibly strong. And
that almost 93% renewal rate, that's not
just customers. That's a community of
people who genuinely love shopping here.
One more shout out for the hot dog. The
fact that they've kept this $1.50 for 40
years while everything else has inflated
tells you everything you need to know
about their discipline and long-term
thinking. They're not only chasing
quarterly profits. They're building
something that lasts. Will Costco look
the same in 10 years? Probably not. Will
it still be a place where you can trust
the quality, get genuine value, and walk
out with more than you planned? I'm
betting yes because good value delivered
with integrity never goes out of style
even if the delivery method evolves. So
yeah, on paper Costco sounds like dad
energy. No ads, no frrills, no music, no
convenient sizing, and yet it is one of
the most beloved and bulletproof
retailers on the planet. Because
underneath it all is a strategy that is
deceptively smart. Use discipline and
scale to earn trust and then double down
on that with every decision. That's why
people will drive across town for
Kirkland Cashews. Why they'll renew
their membership year after year at a
nearly 93% rate. And why Gen Z are
showing up in droves. It's not just a
store, it's a welloiled system. And if
there's one thing that Costco does not
sell, it's shortcuts. Question for you.
What part of the Costco business do you
find the most interesting? And if you're
a Costco shopper, what's your ultimate
purchase? I read every single comment,
so let me know down below. And if you
enjoyed this video, please give it a
thumbs up. Subscribe for more videos
like this. They take a long time to
research and to write, but I really
enjoy it. So anyways, thank you guys for
watching and until next time, turtle
out.
No,
no, that's my hot dog. Thank you very
much.
Hell yeah. Nut game. Thought it was
funny. I make another double onandra
later about the golf balls. So naughty
Kirkland.
Perfect. Does it look ladylike
wine? Vodka.
Is it Greyg goose? Who's to say not sell
its shortcuts?
Hell yeah. If I sat down,
should I sit?
I'm like
Kirkland
quality. One more
little leg pop.
Can you tell I've been hitting the gym?
Bet you can.
Can you see how big it is? This is
absurd. It's so soft. Oh, I love
squishallows.
Okay, nice. That's perfect. Rotisserie
thing in your cart. Am I getting too
silly? Okay.
Whoa, she's crazy. Okay, moving on.
I have a whole new level of confidence
in this outfit.
Uh,
okay. Ready.
163.
Okay. Kirkland. Kirkland. Kirkland.
Kirkland.
Bless you. I could sit up here.
Does this look good?
Sometimes I'm like, how is this my job?
And look who I ran into. A subscriber at
Costco. Look, she's the best.
Oh, you're the best. Thank you so much.
Let's get a hot dog. Hey, if you liked
this video, I bet my bottom $1.50 that
you would also like this video. Check it
out.
[Music]
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