Kirkland SignatureWide moat

Kirkland Signature is thirty years old and accounts for roughly a third of Costco's sales — on the order of $86 billion a year from about 600 products globally¹. To put that in scale: it is larger than the entire revenue of Coca-Cola, and it is achieved with roughly the number of items a small grocery chain would carry in a single aisle.

The financial case for it is the obvious one. Costco's own filings say Kirkland products "are high quality, offered at prices that are generally lower than national brands, and help lower costs, differentiate our merchandise offerings, and generally earn higher margins," and that the company expects "to continue to increase the sales penetration of our private-label items"². Better margin on a lower price is a rare combination and it comes from removing the brand owner's marketing budget from the cost stack.

The strategic case is better and less often stated. Claudine Adamo, Costco's merchandising chief, described the brand this way: "I see it as a tremendous negotiating tool", which is exactly right. In a warehouse with one slot per category, a supplier's alternative to accepting Costco's price is not a smaller order — it is no order, with a Kirkland version of its own product occupying the pallet instead. Frequently that Kirkland version is manufactured by a national brand, which is the sharpest version of the leverage: the supplier can decline the private-label contract and watch a competitor take it.

By comparison, Kroger's private brands generate about $32 billion, roughly a quarter of supermarket sales excluding fuel³. Costco reaches a third at nearly three times the dollars, from a fraction of the item count.

Judge it on Kirkland's penetration of total sales. Rising penetration alongside a flat headline gross margin means the savings are reaching members. Rising penetration alongside an expanding margin means they are not.