How Costco's Partnerships Keep The Kirkland Signature Brand So Affordable

It's no secret that consumers love store brands, like the extensive Kirkland Signature line at Costco. According to the Private Label Manufacturer's Association (PLMA), total sales of store brands hit a record-breaking $271 billion in 2024. That same year, store brand dollar sales quadrupled compared to national brands. 

Affordability is a big reason why shoppers might opt for a store brand. To keep Kirkland Signature prices low, Costco works diligently with national brand manufacturers to take advantage of surplus product inventory by transforming them into popular Costco products. For example, Smithfield supplies about 75% to 80% of Kirkland Signature's bacon, while Kimberly-Clark makes Kirkland Signature diapers. Barton Distillery makes Kirkland Signature bourbon, and K-Cups filled with grounds from Green Mountain Coffee Roasters are slapped with a Kirkland Signature label. With this system, consumers can save up to about 50% when compared to national brand competitors.

Another way that Costco keeps costs down is through bulk purchasing. When the warehouse chain buys products in large quantities, this reduces the cost per unit, and those savings are passed on to its members. Additionally, Costco keeps most of its product selections limited to just a couple of options, especially when there is a Kirkland Signature version. This helps to increase the efficiency of inventory turnover rates and keeps the Kirkland brand economical. 

Costco's decision to create new Kirkland products isn't made lightly. Often, it boils down to a couple of scenarios. Sometimes, a national chain isn't willing to sell to the warehouse chain. In other cases, the price of a particular good skyrockets, and a store like Costco believes it can make a high-quality equivalent at a fraction of the price.

Many variables are involved in making Kirkland Signature products. "It really comes down to the buyers analyzing with the right type of manufacturing partner. They've got to be willing to take lower margins as a percent and focus on high volume," Ron Vachris, CEO of Costco, shared during an interview with The Wall Street Journal (via YouTube). 

The product proposal moves up the Costco management chain until it finally reaches Vachris for final approval. Vachris added that prioritizing some differentiation from national brands is another consideration in whether or not he approves a new product, so that the Kirkland Signature offerings bring new value to Costco customers. The strategy has worked out well, with many Costco customers buying Kirkland Signature foods on repeat.