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Costco is considered a higher-end club retailer and vendors in the natural/organic/LOHAS category can sell to Costco. Small CPG vendors that do not have national advertising or a substantial brand name behind their product may still have the opportunity to get their product in Costco.
That can happen through the Special Events program, also called the Roadshow program. This program allows vendors the opportunity, if accepted, to sell their product at select Costco locations on weekends (Thursday through Sunday). The product does not get put on shelf, but is placed on the floor in locations that generally see more traffic than just the aisle (like endcaps or depending upon the product, is setup with a demo table staffed by the vendor). Here are the program details:
- To apply, there is a food safety audit fee that is paid to Costco, which can vary, but figure $1000 or more. The food safety audit involves a visit by Costco inspectors to the vendor’s manufacturing facility to ensure compliance with Costco standards. The inspectors will provide the company a list of what they are looking for before the inspection so that the vendor can achieve compliance in advance.
- There is a charge per selling day per warehouse location and figure $50 for that.
- Costco charges its usual 14% markup on all good sold as its SRP, and SRP needs to be at least 20% less than regular retail (mass/grocery).
- To apply, the vendor sends a brief description of the product and company to the Costco regional special events manager (see here for Costco regions: ). The manager presents to the category buyer to determine applicability and availability. If approved, the vendor will need to meet with the category buyer before receiving approval.
- The category buyer will pick up to locations in 1 weekend. Depending on sales results, additional roadshow weekends can be scheduled.
- In general, minimum sales to qualify for additional roadshows is $3000 per SKU per warehouse location per weekend, but could be more.
- The vendor can utilize in-store demo teams to help promote the product. The vendor can use Costco’s demo team provider or their own (which can certainly include company employees). In my experience, the cost for Costco’s demo team for food averages $300 per weekend per store per demo table, not including the cost of product samples.
A few other general details about doing business with Costco:
- In general, any vendor cannot have total Costco sales that are more than 20% of that vendor’s gross revenue.
- If the item does exceptionally well at roadshows, Costco may consider the SKU as an in-line item (sold on regular shelf). However, it may be important to continue some level of promotion, whether that be some frequency of in-store demos, advertisement in the Costco Connection monthly circular (quite costly to do), or some other in-store method that Costco may allow. Placement on shelf does not automatically guarantee the minimum movement required by Costco for products in that category.
- As a general rule of thumb, figure that your food product should move 25 times the movement in a typical grocery store. If movement is less, then Costco may discontinue your item.
- Costco category management is generally done by each regional buyer and there are 8 regions in the U.S.
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