Costco wine and its retail domination
by Wine Curmudgeon Posted On
Know three things about this interview with Annette Alvarez-Peters, who runs the Costco wine program:
First, any interview with Peters is worth reading, no matter how technical (and this one is technical), because she doesn’t do many and she is one of the two or three most important wine people in the world. So when Alvarez-Peters says Costco isn’t going to sell wine over the Internet in the U.S., then it’s not likely any other big retailer will, and retail direct shipping will continue to languish in the netherworld it currently inhabits.
Second, it shows Costco’s domination of U.S. wine retailing. It’s not so much that it’s the biggest wine retailer in the country or that it sold $1.69 billion of wine last year, but that it may account for as much as four percent of all the wine sold in the U.S. by dollar volume. In addition, the chain may do as much as $3 million in wine for each store, a gigantic number given that wine isn’t Costco’s reason for being. Kroger, whose wine sales could be close to Costco (parsing these numbers isn’t easy, since not all retailers break out wine revenue), has six times as many stores in the U.S. All of which means Costco has leverage with producers and distributors, even the biggest, that no one else has.
Third, a wine trend at Costco is a wine trend that producers pay attention to because the chain sells so much wine — and that means it’s a trend in the rest of the country that everyone else will be copying. So we are going to see Big Wine brands heavily discounted, lots more sweet red, premiumization, and rose. And Costco is dabbling with wine delivery; it it figures out how to make delivery profitable but affordable for consumers, delivery will become a trend.
We can argue whether any of this is good or bad, but that almost doesn’t matter. What matters is that what happens at Costco changes the way everyone buys wine, even those of us who don’t shop there. Unfortunately, the interview doesn’t do a good job getting that across.
More about Costco wine:
• Costco and its role in the wine business
A little sad that -you- weren’t the one interviewing her, Mr. Curmudgeon. But she -is- a tough get; one of the hardest in the wine world. What would you ask her if given the chance?
I actually exchanged emails with Ms. Alvarez-Peters for a post years ago that didn’t run for a variety of reasons. She did even fewer interviews then.
To me, the key questions are:
1. Why does Costco sell so much wine, given that it’s almost impossible to get help if you need it, the stores are often in inconvenient locations, and you have to pay for the privilege of shopping there?
2. How difficult is it to run a national operation given all the different liquor laws you have to deal with?
3. How do you feel about three-tier, and would you prefer not to have it? (Which I doubt she would answer.)
4. Why does your private label Kirkland wine sell so well?
It’s likely the primary reason Costco doesn’t sell wine over the internet is because retailers, unlike wineries, have a much harder time selling wine across state lines. A website selection would have to have a specific inventory for each state.
Each Costco now has a different selection. While there likely are brands that are sold in all or most locations, many of the wines are specific for that individual retail location. Costco doesn’t really provide individual help for any category, though sometimes a wine buyer or demonstrator is in the store who can answer questions.
Nobody wants three-tier except for wholesalers, and wineries that prefer to work with them exclusively.
Kirkland wines are relatively inexpensive compared to similar wines in each category. Some are very good, some not.
Very true, Larry.. but what makes that decision all the more interesting is that Costco has a long and expensive history of challenging three-tier and even succeeding. They have the deep pockets and the legal muscle to try something if they wanted to,
I beg to differ about varied selection. Now, my sample size only 3 stores of theirs that I visit in San Diego, but see only 2% or 3% different selection.
We sell our wine to Costco and I will tell you that their current strategy might work for their bottom line, but moving away from craft local producers does not resonant with their consumers. In the last year, we have noticed much more of the mass produced wines and lower quality wines from other states (mostly California). The smaller craft producers are getting pushed out. We have heard from many serious wine buyers that they won’t buy from Costco because they don’t support local/regional fare as much as they did in the past. Their local wine stewards (if they have one for a location) doesn’t get to make the decision about purchasing. The corporate buyer does, who doesn’t have a pulse on the consumers for that region. I doubt they care either. In our state, the consumers are moving away from that. They support more local, less mass produced. I believe that any retailer, Costco or otherwise needs to have local buyers, not some corporate type.
Amen
I export select CA and OR pinot noir wines to France. Said wines are very good indeed and competitively priced since most good Burgundies are exported or too expensive for the average French.
California Wine Gallery….in Annecy, France
Not much of an interview. Rather blah, in my opine. I work for a big competitor, Safeway. I sell and talk all day to customers, my views here are strictly my own.
They miss many customers who don’t shell out $70 for a membership.
They don’t lead anything, they follow. That is, they do not initiate any visible relationship other than building their own brands, again, based on what I see.
Safeway prices are very competitive to Costco.
And, at least for now, we load n bag your purchase, we load your car if you need help, we do listen to customer requests, we do party planning, and we conduct ongoing training of our staff, inviting producers to come and take questions and sample the products.
Yea, they are a big player. But you can find wider selection in our stores, and you don’t have to buy a 5 pound box of shrimp if all you want is dinner for 2 people.
Honestly, folks – talk about missing the forest thru the trees. Costco sells so much wine for one reason – price. It’s prices are always competitive if not market-leading, due to their pricing policies. And these policies drive the customer mindset that I won’t get screwed buying a case of wine at Costco. I have a high probability of getting ripped off at my local grocery store, where 30% off “special sales” each week tell me that their list prices are way inflated. Or the specialty stores or big box Bevmo’s with similar pricing strategies.
Costco is the master of branding and maintaining the consumer perception of great deals. It makes shopping for routine items a bit of an adventure, intentionally. And the numbers add up wonderfully for them.
Perceived value is the driver here, and will remain…
Z
I don’t shop at Costco so I’m sure I need an education from a shopper’s perspective…but…
I’ve come across a substantial number of posts recently where Costco is indicated as the retail source. And I’m generally surprised…(THAT wine is at Costco?). Not only that, but this Kirkland line continues to surface. (Anyone try it? I’ve not.)
I know my local shop, the one that’s pushing to compete with the local grocery store let alone Mr. Big, sees Costco with a defensive view…
Great conversation; I’ve been curious.
Kirkland may be the most value-oriented private label brand in the country, and most of the wines are certainly better made than the the great majority of the junk at Trader Joe’s. In this, it’s part of what Costco does best — quality private label in all categories, whether peanut butter or cranberry juice.
The Kirkland Rutherford Meritage is excellent. I also bought a cheaper Kirkland Napa Valley Marriage and it was almost as good at 40% less. They were out of their Savignon Blanc, but Lettie Teague gives it a high rating. She is the wine editor for the Wall Street Journal. She also rated one of their $20 Champaign style wines as great too. It is a lot of fun to shop there for wine.