🌭 Costco’s Kirkland: How a $1.50 Hot Dog Changed Store Brands Forever | 22

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Well, Jack, for this episode, we did go deep on our Costco research.

Because you kind of have to go deep when you're researching Costco, right?

I mean, I went to the store this weekend and filled up a gigantic shopping cart, if that's what you mean.

Now that I'm speaking with a card-carrying Costco member over here, I should point out over the weekend, I was thinking about all this research, all the numbers, everything we crunched to put into this episode.

And you know what?

There is a fair argument to make.

Costco is the only store in the world where you could spend your entire life within all the walls, never leave, and not just survive, but thrive.

Jack, they sell bathtubs so you could have a home birth in aisle six.

Okay.

They sell diamond rings and wedding dresses so you get married in aisle eight.

Uh-huh.

You don't need to buy food.

You live off the free samples.

Money.

I know you're worried about money.

Oh, they have gold bars and they sell credit cards and insurance over at Costco.

And best of all, Jack, if you have to pass away, they got you covered because they sell caskets too.

From cradle to grave, that should be Costco's new slogan.

But our story isn't just about Costco because the subject of this episode is found within the Howland Halls of Costco.

Not one product, but hundreds of products.

From paper towels to peanut butter to your dad's favorite sweatpants.

We're talking about Kirkland Signature.

As I was at a party this past weekend, the bar had Kirkland Signature tequila.

It's a brand created by and sold at Costco, but Kirkland products aren't actually made by Costco.

They're made for Costco by companies who want to sell their products.

at Costco.

Sometimes the manufacturer is no one you've ever heard of, but other times it's a name brand quality product that's basically operating in incognito mode.

Like Kirkland's Espresso blend.

For years, it was actually made by Starbucks.

And Jack, what about Kirkland batteries?

They're made by Duracell.

The Costco customer base is so huge, 140 million members, and so loyal.

90% renew their annual memberships.

That brands will do almost anything to earn that Kirkland stamp of approval.

Costco's revenues are almost three times that of Sam's Club at Walmart and more than 12 times that of BJ's.

In fact, Costco is so beloved by Costkinatics that people are even having their birthday parties at Costco, Costco Mitzvah, Aisle 6.

And that is why Jack and I call it the cult of Costco.

Because once you've joined, oh, you are obsessed.

But here's the thing.

You may think that Costconians love Kirkland because it's the signature brand of Costco.

But we actually think it's the opposite.

We think people are obsessed with Costco because of Kirkland.

Since the debut of Kirkland's signature in 1995, this private label has become a huge driver of Costco's success.

In fact, Kirkland Signature products make up one quarter of Costco's total corporate revenue.

That makes Kirkland, not Costco overall, just Kirkland, bigger by revenue than Coca-Cola or Nike.

But Kirkland's success, it didn't just happen.

It was planned.

by Costco's co-founder and longtime CEO, Jim Sinegal.

Jim built the Kirkland brand by flipping the concept of a store brand on its head.

So grab a huge shopping cart and get out your membership card because we are diving into the origins of Kirkland's signature, which starts with the origins of Costco itself.

And you're going to discover how a bolt of lightning striking a plane actually helped give birth to Costco and how its famous hot dog plus soda combo has managed to stay at $1.50 for 41 years in Count.

Oh, and if that price ever changes, what did the CEO say he'd do, Jack?

He will effing kill you.

Put down that double-chunk chocolate chip cookie because here is why Costco's Kirkland brand is the best idea yet.

From Wondering and T-Boy, I'm Nick Martell and I'm Jack Kravici-Kramer.

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Few places are quieter than a discount store parking lot the week after Christmas.

The holiday shoppers are gone.

All that's left are some crumbled up receipts tumbling through the wind and a few off-season seagulls.

It's 1954 and we're in San Diego's warehouse district.

This is the loading dock of a brand new discount store called Fedbart.

Its members are all federal government employees.

For For a one-time $2 membership fee, government employees could get access to low-priced goods from bourbon to rotisserie chicken to gas.

And even though Fedmart is barely a month old, its co-founder and chairman, Saul Price, has a feeling that this is gonna be huge.

Saul's an interesting guy.

He's a shrewd man with a sharp wit, and he's excited to get his new business off the ground.

He was actually born in the Bronx to Jewish immigrants who worked in the garment industry and his parents were actually communists.

But by the age of 38, Saul's a little different.

He's working in the retail industry over on the West Coast, and today he's hired a few extra hands to get his merchandise loaded in off of those Southern California trucks.

Saul watches the newcomers pull items off the trucks and load them onto dollars.

And he notices one kid, a guy unloading mattresses, who has an extra bit of hustle.

Yeah, Jack, we know that the mattress is literally the most difficult piece of furniture to move.

It's flopping everywhere.

There's nowhere to grab it.

But this kid is making it look easy.

He's slinging one mattress after the other like human Tetris while staying careful not to damage the goods.

Saul notices this and he says, I gotta find out this kid's story.

He's an 18-year-old named Jim Senegal.

The son of a Pittsburgh steelworker, Jim's family moved out west while he was still in high school.

He's a humble guy with a strong work ethic.

And a strong sense of how to lift with your legs, not your back, when moving a queen-sized mattress off a truck.

But since heading to junior college, Jim's been feeling unfocused.

His grades aren't great and he doesn't know what he wants to do with his life.

He's only here because a friend invited him to come earn some extra cash.

But little does Jim know, this one-day gig will change the course of his entire life.

Saul Price decides: you know what?

I'm going to take this kid under my wing.

And he's going to give Jim a job as a grocery bagger.

This is actually really lucky for Jim because Saul Price just happens to be a legend in the retail industry.

Fedmar is known for its great deals because Saul keeps his markups low.

Saul's entire goal in life is keeping prices low for the customer.

Charles Dickens could not have cast this better.

The guy's name is literally price.

His middle name is probably low because low prices may seem like a no-brainer, but for retailers, your markup is how you make money.

For example, if you buy a pen for $1 wholesale, you want to sell that pen for at least $2 retail.

The markup is literally the profit.

So Saul's obsession with keeping markups low kind of goes against the retail grade.

This is why he is totally ahead of his time.

He figures, you know what?

Maybe I'll lose some of that fat margin, but instead gain customer loyalty through that lower price.

More customers, more volume, and boom, your profit problem is solved.

Unfortunately, these methods make Saul some enemies in the retail community.

Like that pen company you were just talking about, Jack, they would prefer if customers think their pens are worth $2, not $1.25 that Saul would charge.

If Fedmart sells them for $1.25, then that pen company's product is less valuable in consumers' eyes.

Other retailers even pressure their suppliers not to work with Fedmart, but Saul's got a trick to deal with that.

If a supplier doesn't want to work with him, he creates a store brand version of their product and offers it at a lower price.

Saul is using his Fedmart store brand as a price leverage as well.

If a supplier won't sell him peanut butter at the price he wants, he'll go to one of their rivals to help them make a Fedmart version for cheap.

I can see why he's making a few enemies over there.

It's a powerful motivator for companies to simply send him the product he wants at the price he wants.

But here's what Jack and I find fascinating about this story.

If Saul Price drives a hard bargain with suppliers, he actually does the opposite with his employees.

He actually works with organized labor to create very generous pay packages and benefits for his workers.

Yeah, that cuts into his already very slim profits, but it also reaps tons of benefits in terms of employee satisfaction, employee productivity, even employee loyalty.

Hiring new employees costs money.

You got to post ads, you got to go through interviews, you maybe need to offer them a signing bonus.

Saul knows it's cheaper to keep the same crew with you ride or die, and you only earn that kind of loyalty by offering them good pay.

So Saul is pushing lower prices and higher wages, a total 180 from everything else that big corporate executives are known for doing.

Saul's got the happiest customers and the happiest workers.

And his protege, the mattress-moving phenom Jim Senegal, makes note of all these business decisions.

In its first year of business, Fedmart actually beats its sales goals by 4X.

In fact, Fedmart is such a hit, Saul decides to open Fedmart's doors to everyone, not just federal government employees anymore.

Eventually, Saul expands Fedmart to 41 locations across the American Southwest.

And Jim, the formerly directionless kid who couldn't make it through junior college, he becomes the VP of merchandise.

If the name Sam Walton sounds familiar, it's because he founded Walmart.

But what you might not know is that he stole the idea for Walmart from Saul Price.

Are our lawyers okay with us saying he stole the idea for Walmart?

Yeah, they are.

Oh, really?

Because Sam said he stole it himself.

He publicly admits that he either stole or borrowed more ideas from Saul Price than from anyone anyone else in business.

So when Sam Walton opens the first Walmart in 1962, it is directly inspired by Fedmart's whole thing.

I mean, Jack, he even stole the name format for Walmart.

Like half the Walmart name is the Fedmart name.

Well, Walmart starts stealing Fedmart's customers too.

Almost immediately, Walmart starts gobbling up Fedmart's market share.

In less than 12 years, Walmart is dominating the space.

And in 1974, a German billionaire is able to buy up a majority stake in Saul's company, pushing Saul Price out of his company not long after that.

Now, this is not an exaggeration.

Saul literally gets locked out of his own office.

At 60 years old, Saul has to start over completely.

Under the German billionaire's leadership, Fedmart itself actually collapses in just a few years.

But we're talking about our boy from the boogie down Bronx here.

Saul Price, within months, has a new idea.

And his protege, Jim Senegal, leaves Fedmart to help him kick it off.

By now, Jim's not a kid anymore.

He's 40 years old and he's a seasoned retail exec, but he's fiercely dedicated to his mentor, Saul Price, and their new project.

This new store from Saul, it resembles Fedmart a little bit with aisles of toilet paper, lettuce, and lawnmowers everywhere.

But there is one important difference.

Instead of a straight-up retail store anyone can just walk into, this will operate as a wholesale membership club.

For 25 bucks a year, customers get access to food and household products at wholesale prices.

That's the deal.

Because why buy a bar of Irish Spring for $3 when you can get 10 for $15?

Essentially, Jim and Saul are offering a store that cuts out the retail middleman.

Perfect timing, Jack, because in 1976, the United States is in the midst of a gnarly economic recession.

Everyone is worried about the price of food and gas.

So a store that's focused on member-only deals and saving money, that has a ton of appeal.

And Saul has another revolutionary idea for this new place.

He's going to sell less stuff.

He's going to limit the number of products they carry at a time.

Instead of offering Irish Spring, Dove, Ivory, Dial, and a dozen other soaps like the other grocery stores, they'll maybe offer two or three brands and that's it.

Take it or leave it.

We call it psychonomics, the combination of psychology and economics.

Because in psychonomics, choice paralysis, that's a real thing customers experience.

They know this if you've gone into CVS and spent half an hour staring down 30 brands of moisturizing cream.

I mean, Jack, that is a psychological insight I think we can all relate to.

Too many choices completely overwhelms you.

A club to buy retail products at wholesale prices attracted a ton of customers.

And wholesale, that requires bulk orders.

So they need a ton of space to store inventory.

For their new wholesale clubs, they open in a converted airplane hangar that once belonged to the famous Howard Hughes.

This place is ginormous.

But thanks to Saul's idea of limiting inventory, shopping seems less like an impossible task, more like a treasure hunt.

Which leads to another insight from our buddy Saul.

The treasure hunt.

Like you're a modern-day pirate plundering the isles until you find that cute top you've always wanted.

That was more than a Scottish pirate, if I've ever heard one.

Oh, you never said where the pirates came from, Jack.

Well, this treasure hunt strategy, it's born out of Psychology 101 as well.

It appeals to a shopper's sense of optimism.

X marks the spot.

Back to our buddy Saul.

He's blending psychology and economics like a Freudian Warren Buffett drew.

The new store opens in San Diego in July 1976.

This new company is called Price Club, a play on its founder, Saul Price.

Like we said, this guy was born to be a brand.

And initially, they had expected mostly small business customers to shop in because, you know, what young couple or small family needs a pallet of detergent or like 30 cans of soup?

It turns out everyone, naked,

everyone likes Price Club, not just small business owners.

People drive miles just to get their hands on these deals.

They're removing the backbench of their minivans to make space for their Price Club hall.

And Saul, he is back on top, baby.

And so is his star employee, Jim Senegal.

But here's the thing, daddies.

You know it's just a matter of time before Saul's nemesis, Sam Walton of Walmart, notices their success and gets inspired again.

So just as Saul Price and Jim Senegal are building up Price Club, Sam Walton decides he can't let them have all the fun.

He launches his own wholesale club, Sam's Club, in April 1983.

Sam Walton is building a retail empire just by ripping off these guys.

But being first to market with an idea doesn't protect you from the competition, especially from a man as ambitious and brazen as Sam Walton.

Customers generally don't care who is first, they care who serves them best.

And that's going to be important for the next part of our story, because someone besides Sam Walton wants to start a new wholesale club too.

A Seattle-based retailer named Jeff Brodman.

Jeff's whole family is actually in retail, specifically in clothing.

And by the early 1980s, just like Sam Walton, he's got his eye on the Price Club model.

Jeff wants in before the field gets too crowded.

But Jeff doesn't know anything about big box stars.

He'll need an experienced co-founder who does.

So he asks some retail buddies of his for recommendations, and all of them have one name at the top of their lists.

You gotta talk to Jim Senegal.

Jeff cold calls Jim and basically asks,

Hey, your boss isn't in the room, is he, right?

How would you like to leave Price Club and start a new version of it with me?

This is arguably the biggest phone call in retail history.

Jeff Brockman, a total stranger, is asking Jim Senegal not just to leave his mentor, Saul Price, but to become his competition too.

Jack, this is like that scene in every biopic where the suit pulls the lead singer aside and says, Hey, kid, the band is just holding you back.

Join me.

We're going to make you a stop.

And Jim says, yes.

Now, we don't know how he breaks the news to Saul, but this must be a hard conversation.

Jim was the karate kid to Saul's Mr.

Miyagi.

But now, Jim and Jeff are starting at the bottom.

So they spend months maxing out their credit cards to fund their startup and to woo investors.

They're working on their elevator pitch 20 times a day.

They need startup capital if they're going to pull this big vision off.

Now, one evening, Jeff is flying home to Seattle after a business trip and he strikes up a conversation with his seatmate.

By the grace of the airplane seating gods, his in-flight neighbor happens to be a venture capital investor.

Well, who hasn't found themselves on a plane sitting next to a major VC jack?

Not too shabby.

Jeff mentally prepares his internal slide deck to pitch the guy, blocking him from easy access to the lavatory.

But then the voice of the captain comes on the PA in that super calm voice that captains use.

This is your captain speaking.

Sorry for that bit of turbulence.

Folks, the plane has been struck by lightning.

Please make sure your seatbelts are securely fastened.

We'll be making an emergency landing.

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When we left the entrepreneur Jeff Brotman, his plane had been struck by lightning.

Perfect timing though, because he just found out that he was sitting next to a VC who might be in a position to fund a startup.

Their plane makes an emergency landing in San Francisco and everyone's everyone's okay.

So Jeff and the VC are stuck at the airport together.

It's the perfect chance for Jeff to convince the guy to invest in his wholesale club business.

In between the gate announcements, he's going over financial forecasts and competitive landscape slides.

He tells him that it's called Cost Company or Costco for short.

And guess what?

Jeff lands the deal.

You know what they say?

YOLO fleets to Costco.

And with this key funding secured, Jim Senegal and Jeff Brotman get to work planning their first location.

Jim wants to make sure that Costco isn't in direct competition with Price Club, so they plan to open Jeff Brotman's Stomping Grounds of Seattle, Washington.

And that brings us to the birth of Costco.

They fling open the first Costco doors on September 15th, 1983.

Costco is cut straight from the Price Club cloth.

Although the businesses are a thousand miles apart, the business plans right on top of each other.

They offer memberships for small businesses for $25 and for individuals at $30 each.

Here is where young Costco also makes a bold business decision.

Costco chooses a specific profit ceiling.

That's right.

Costco caps their price markups at 14% for outside brands and 15% for store brands.

Some markups are way lower than that.

In fact, the average markup for Costco products is actually just 11%.

On the other hand, Walmart's typical markup is more like 25% and Target's typical markup is more like 45%.

And of course, in other industries like pharmaceuticals or luxury, markups can be a thousand percent or more.

So Costco pricing their products just 14 or 15 percent above cost is basically nothing.

And just like Price Club, Costco decides to limit the amount of merchandise that they carry to reduce their customers' choice paralysis.

Today, a typical Costco has about 3,800 SKUs or SKUs or stockkeeping units.

On the other hand, Walmart, they carry about 120,000 SKUs.

And it's not just that they have fewer options.

Remember, you don't always know what Costco is going to have in stock, which adds to that treasure hunt vibe.

Find it now, Captain Blackbeard, or it'll be taken by another bargain hunter.

Well played, Jack Sparrow.

Well played.

Now, the first few weeks the store is open, sales grow at a weekly rate of 25%.

Within 10 weeks, this brand new cost company store hits $1.4 million in weekly sales.

Oh, and it doesn't stop there because in just three years, Costco goes from a simple concept to a $1 billion company.

That makes Costco the fastest non-tech physical company we've ever seen hit the $1 billion unicorn mark.

Costco, it's on its way.

But get ready, Yetis, because their best idea is yet to come.

Attention, Costco shoppers.

Let's jump ahead about 10 years.

It's 1993.

And Price Club, a wholesale club run by Jim Senegal's old mentor, Saul Price, it's actually merging with Costco in a deal worth $2.2 billion

to form Price Costco.

Jim and Saul, they're back together.

This idea makes sense.

You know, Costco was formed in Price Club's image using lessons Jim learned from Saul.

So like, why wouldn't they team up again?

One of the lessons Jim took to heart was paying your workers above the going rate, even covering most of their health insurance premiums too.

Jim has seen how much this cuts down on employee turnover and on theft, two big costs that most retailers struggle with.

In fact, the cost of replacing each hourly retail worker is about $1,500 a person.

So giving someone a $1,500 pay raise, it actually pays for itself because it prevents that worker from leaving.

After the merger, Price Costco has vastly expanded its territory.

They have over 400 locations pulling in $16 billion in yearly sales.

But Jack, this expansion, it presents a branding challenge that goes way beyond their awkward combined name.

This has to do with Price Costco's store brands.

Okay, we mentioned earlier that Saul Price innovated on the idea of store brands to leverage his position with suppliers.

Those store brands they create are sometimes called private label brands, meaning it's made by one manufacturer whose name you don't know, then packaged under a different company's brand name that you do know.

Now, Jack, if we're going to talk about private label brands, we should also talk about generics.

You'll sometimes hear store brands referred to as generics, but that's not totally right.

Rite Aid brand vitamins, they still have a brand on them.

It's just the store's brand.

That's the key distinction.

True generics were born in the 1970s, driven by that horrible economic recession we mentioned.

To fight the rising prices on food, stores started offering cheaper groceries with zero branding at all.

Cans that were just labeled beans or fruit cocktail in very simple lettering.

Now, generics do keep a lot of families from going hungry during economically tough times, but they're also kind of humiliating.

These tend to be inferior knockoff products and embarrassing to put in your shopping cart.

These true generics, they're actually going to fade away by the early 90s, but store brands, they take on that generic brand stink, which is why in the very beginning, Costco is doing its best to make sure that their store brands do not look at all like store brands.

They're rocking about 30 unique store brands on their shelves at this point with different store brands assigned to each and every product.

Like their dog food store brand, it's called Nutra Nuggets.

And their store brand soft drink, it's called Simply Soda.

You've got Clout Laundry Detergent and Ballantre Wine.

These names are meant to draw your eye away from the fact that they're store brands, almost like they're trying to pass as regular retail brands.

But as Costco, sorry, Price Costco, expands its territory post-merger, they plan to open locations in Canada and the United Kingdom where private label goods are much more the norm.

In fact, Jim visits England to do some retail research and learns that 50% of the food business there is private label products.

But here's the tricky part, Jack.

Costco, they're going to have to clear all those different store brand trademarks for use in foreign countries.

So for every new country that they enter, they're going to need to make sure that Neutrinuggets dog food or ballantree wine is available as a trademark name.

Trademarks aren't cheap and the paperwork can be massive.

Jim says they're going to need a room full of attorneys just to take on this task.

Forget baggers and stalkers.

Costco's growth is going to depend on stockpiling a whole bunch of lawyers.

And there's another problem with this strategy.

Sam's Club.

Because pressure from the Walmart Corporation doesn't just stop.

Walmart, they're aggressively expanding Sam's Club onto the Costco turf.

And they've got a jumbo-sized VAT of Walmart money to keep pushing.

So picture Jim Senegal, one day in the mid-90s, walking up and down the aisles of his flagship warehouse store.

He studies the sacks of Neutra Nuggets dog food, the shelves of Ballantre wine, and the flats of Simply Soda.

All these different brands that Costco actually owns, and he gets this feeling, who are we?

Like, what are we actually making here?

Because you know what?

Neutra Nuggets isn't a knockoff.

It's a damn good product.

Jack, this Ballantre Pinot, it's a pretty good Pinot.

These are high quality private label goods made exclusively for Costco, thanks to deals that Senegal negotiated himself.

So he thinks, why are we hiding our store brand products?

Let's let the people know that these are Costco products.

Let's pull a 180 and do the opposite of everyone else and embrace the private label.

Jim Senegal makes the biggest move we've seen yet.

He decides to change everything about how the store brands work.

For maybe the first time in retail history, he's going to try to make the store brand cool.

One Costco store brand that'll rule them all.

It's the all-hands meeting at Costco's corporate offices in the Seattle suburb of Kirkland, Washington.

It's 1995.

Jim Senegal is standing at the front of the room.

and he's asking his staff for a name and that name was Seattle signature.

Nice alliteration.

I like it.

Solid word length.

It works.

Easily repeatable.

But they're not able to clear the trademark.

So they're like, all right, we like the signature part.

But signature what?

City signature?

It doesn't really work for me.

Senegal signature?

It's a little ego-y.

I'm feeling that's not a good look.

What about where we are right now?

Hey legal, is Kirkland signature taken?

It isn't.

Because despite being the 12th largest city in the state of Washington, the biggest claim to fame of the city of Kirkland is that it's the hometown of a former Miss Washington and the lead singer of the grunge band Mud Honey.

All right, so what we're saying here is that Kirkland Signature is still very available as a trademark.

So Costco clears the Kirkland Signature trademark in every country they plan to expand to.

Then they pull every single one of their 30-store brands off the shelves, replacing them all with Kirkland Signature.

One small step for branding, one giant leap for Costco.

You've seen this logo because it may be on someone's tattoo who you've come across.

It's a big black rectangle with Kirkland written in all caps and white letters and then signature written in like a cool California red.

So the first Kirkland item to hit Costco shelves is Kirkland Signature Vitamins.

In a 5 million count bottle, of course.

So many other signature products follow.

Golf clubs and dish soaps, household wipes, and $5 rotisserie chickens.

This is unprecedented, Nick.

For the first time, a major retailer has a private label brand across nearly all its products.

And immediately, this unified branding starts paying dividends.

They get to spend less on packaging and branding since they can use the same logo on all of their products.

They also now have a single brand to stand behind that is easily identifiable to the new shoppers.

People love Costco, so they start to love Kirkland.

Their feelings about one are transferring right over to the other.

People trust Kirkland signature, and that's because Jim Senegal has two cardinal rules for any Kirkland product.

It has to match the name brand in quality and beat the name brand in price.

On the price side, Kirkland brands cost 15 to 20% less than the name brands because they're negotiated at a lower rate.

So beating the name brand's price tag, yeah, that's the easy stuff.

But matching the name brand on product quality, that's where Costco's Costco's sourcing for Kirkland products gets really clever.

We've teased the fact that oftentimes the supplier of a private label brand is actually a name brand manufacturer selling anonymously at a discount.

Yeah, like our buddies over at Duracell, who sell surplus batteries to Costco, which they turn around and rebrand as Kirkland batteries.

And that Kirkland signature roast coffee?

That's Starbucks coffee in disguise.

Or at least it was definitely Starbucks until 2023.

And we know because they name-dropped Starbucks right on the label and Jack Jim can pull this off because he knows what Saul figured out years ago brands want to be at his store so they're incentivized to work with him to provide store brand goods and the prices on these goods Jim negotiates them ferociously.

He might look and sound like a total sweetheart, salt of the earth kind of guy, but this man, oh, he drives a hard bargain.

He's looking to get his card holding Costco members the lowest price possible.

So he's willing to endure some awkward pauses on the phone calls with the sales reps to get those prices.

When dealing with suppliers, Jim has a rule.

No one gets a better price than us.

He actually drops a frozen food supplier when he gets wind that they're giving Walmart a better price than they're giving Costco.

Oh, and then Jack, what about the Starbucks incident we discovered?

That was wild.

One day, Jim Senegal reads in the newspaper that there's been a global drop in the price of coffee beans.

And yet, Starbucks, his supplier for coffee, has not lowered their wholesale bean prices to match.

Because honestly, who would lower an agreed upon wholesale price voluntarily?

Well, Jim thinks that Starbucks should.

So he threatens to drop Starbucks as a supplier if they don't lower their prices to match the global market price.

And this goes all the way up to the CEO and founder of Starbucks, Howard Schultz.

Howard Schultz asks Jim, who do you think you are?

The price police?

And then Jim gives him one of his awkward pauses and then says, yeah, I am the price police.

You better lower those coffee prices, Howie.

Jim figures, I'm representing millions of Costco members, and I'm not leaving until I get them the best deal possible.

There are so many amazing stories like this where Jim is just fighting tooth and price-cutting nail to get you a lower price on a Kirkland brain.

He's relentless.

He's come a long way from loading up mattresses in the back of a truck like a human Tetris.

And you're going to see just how relentless he is when it comes to a beloved Kirkland signature staple.

Actually, maybe the most beloved Kirkland signature staple.

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The year is 2008 and Costco is riding high.

They have long since dropped the awkward price from from their name, so they're just Costco now.

And they've got around 500 locations with over 100,000 workers.

Sales are sitting at over $70 billion annually, making them bigger in today's dollars than Bank of America, Tesla, or Disney.

They've IPO'd, they're publicly traded, and Americans are buying stock in Costco like it's an 80-ounce tin of tuna.

And a huge driver of Costco's success, it's Kirkland signature.

People have given their trust to this brand.

They know that if they see that label, it's just as good as the name brand, but cheaper.

Whatever the Kirkland price, it's the best deal that they're going to get.

Still, though, no one is immune from market forces.

The prices of goods are rising.

The 2008 global financial crisis is on the horizon, and one Kirkland product in particular is stressing out Costco's accountants.

If you've been to Costco, you know that one of its most popular features isn't just the free samples, it's the entire food court.

Fountain sodas, pizza slices, churros, something called a chicken bake.

But the star of the food court has always been the hot dog, a 100% all-beef kosher dog that's been priced the same since the store opened in 1983.

A buck fifty, 20-ounce drink included.

So one day, Jim Senegal is approached by one of his employees, Craig Jelinek.

Side note, eventually Craig is going to become Costco's CEO, but in 2008, Jim's still the boss.

Well, Craig's run the numbers and he realizes that Costco is bleeding money with these Kirkland hot dogs.

So Craig suggests maybe it's time to nudge the price up.

Nothing crazy, maybe just a buck seventy-five.

Nick, can you read Jim's answer to Craig's suggestion?

Jim says, if you raise the price of the effing hot dog, I will kill you.

Figure it out.

Because to Jim, this hot dog is the purest symbol of why customers trust the Kirkland brand completely.

No other retailer is offering lower prices on hot dogs than Kirkland, that's for sure.

The $1.50 price tag is a promise that Costco will always be on the customer side.

Remember that sacred 14% markup ceiling that Jack and I mentioned earlier?

Well, Jim describes the temptation to raise prices beyond 14% as being like heroin.

It's addicting once you start, and then you start raising prices more and more.

Sure, he'd gain back some short-term liquidity and profitability, but it would break trust in an instant.

Jim would rather not give in to that temptation to raise prices even once.

And this is why customers have so much faith in Costco and the Kirkland brands.

They even have a saying, Costco would never.

Yeah, as in Costco would never price gouge.

They would never sneakily swap out one ingredient with something cheaper, and they'd never raise the price of a Kirkland hot dog.

So Craig gets the message after this death threat.

And sure enough, they work out a solution to lower cost of the hot dog even more so they can stick with that $1.50 price.

Costco stops buying their dogs from outside suppliers in fact costco even builds their own hot dog manufacturing plant in los angeles this reduces costs enough to make the hot dogs if not profitable a net loss that they can afford the kirkland hot dog still costs a dollar and fifty cents and it still includes that 20 ounce soft drink in fact costco sells 199 million of these hot dogs a year that's 300 million dollars of dogs it's this faith in kirkland that has elevated it beyond trusted brand status into cult status.

Thou shalt not raise the price of hot dogs ever.

Okay, so as we mentioned earlier, Costco limits how many items they carry in the store.

Remember, 3,800 SKUs on the shelf compared to Walmart's 120,000.

Wow.

In other words, Costco offers only 3%

as many things in the store as Walmart does.

And here's the psychoeconomics on that.

This method, it gives Costco shopping a special, you know, scarcity boost because you don't know when they're going to have those Kirkland sweet potato fries again.

So you'd better buy three.

Actually, let's make it four.

Ah, let's make it five bags right now.

It's an equation that Fortune magazine calls bargain plus treasure equals fandom.

But Jack, we also should share something fascinating about the cult of Kirkland because it's one practice that so far Walmart and Sam's Club, they just have not been able to replicate.

And it's not for lack of trying.

Sam's Club introduced their own private label, Members Mark, in 1998.

But the obsession factor for Members Mark, it was never there.

So why is that?

Well, there's a couple of possibilities.

First, Sam's Club did not go all in on promoting their private label brand the way that Costco did.

Sam's Club actually maintained 21 different private label brands up until 2017, when they finally consolidated all of them under the members mark label.

But we actually have another theory.

Kirkland is Costco and Costco is the anti-Walmart.

Those aren't our words.

Those are from a New York Times article published all the way back in 2005.

This profile laid out all the behind the scenes stuff that Jim Senegal was doing to make Costco different, like worker salaries.

42% higher on average than what was being offered at Sam's Club.

Like Saul Price before him, Jim Senegal made fair wages and benefits, not just part of his mission, but part part of his brand.

Also, Jack, we should point out that store employees are just simply nicer when they're paid better, which makes a store a lot more pleasant a place to shop.

And we're glad to support a place that creates that kind of environment.

Today, Costco occupies the number 11 spot on the Fortune 500 companies in America with the highest revenue.

Costco made nearly $250 billion in sales last year alone.

Kirkland generated $56 billion of those revenues.

If Kirkland were a standalone company, it would be bigger than Nike.

It would be bigger than United Airlines.

Kirkland would even have double the revenue of McDonald's.

There are currently about 550 separate Kirkland products, including shirts, hair growth serum, cat food, garlic shrimp, wildflower honey, and a great set of golf clubs.

Oh, in Jack, we should point out that Walmart is finally trying to get in on this Kirkland signature magic.

They launched Better Goods, the first new Walmart brand in 20 years.

And who knows, it may threaten Costco's dominance yet.

But one thing we've learned, never, ever count Kirkland out.

So Nick, now that you've heard the story of Costco's Kirkland signature brand, what's your takeaway?

Jack, my takeaway is that content is king, but curation is queen.

In a world of paralyzing choice, consumers, we appreciate when someone presents us with just the best options.

This is the point of like top 10 lists and product review sites, travel agents, personal shoppers.

All of these are popular because the internet has given us just a paralyzing amount of choice.

In a world of 17 Mayo options, there's value in Costco saving you time, effort, and research by curating just three simple options to choose from.

Content is king, but curation is queen.

But Jack, what about you?

What is your takeaway on Costco's Kirkland signature?

Companies should write their own corporate 10 commandments.

Now, they don't have to be exactly 10, but companies need a few unbreakable rules to keep them aligned on their first principles.

We mentioned that Costco never raises prices beyond a 15% profit margin for Kirkland products and 14% profit margin for name brands.

It's a holy rule.

That's actually shocking to have a rule like that.

Most companies, if they have pricing power, they increase the prices as high as customers are willing to tolerate.

But Jim Senegal, his cardinal value, says no.

Jack, I think you said he compared hiking prices by like a few bucks to trying heroin.

Yeah.

But because Costco treats the 14% profit cap as a sacred vow, a commandment, customers trust them without question.

That's why there are almost 130 million Costco cardholders shopping today.

Before we go, it's time for our absolute favorite part of the show, the best facts yet.

The hero stats, facts, and surprises we discovered in our research, but we just couldn't fit into the story.

Nick, what have you got?

So, Jack, in America, you can learn a whole lot about our states based on our favorite Kirkland products.

In Arizona, California, and Illinois, it's Kirkland-brand Prosecco that's their top seller.

In New Mexico, it's Kirkland-branded leggings that are the top sellers.

And, Jack, it's not just stuff you can fit in your cart because Costco is also now getting into the real estate game.

In South LA, Costco is building a new warehouse plus 800 apartment units on top of the store.

Kirkland Condos, it's happening, baby.

And finally, here are some other big ticket items besides apartments that you might not have known were sold at Costco.

Okay, Jack, gold bars, cars, and jewelry.

In fact, Costco's jewelry sales are about on par with Tiffany.

Maybe someday we'll even be able to go to a museum and see the Kirkland Diamond.

Although it wouldn't really be a museum, Jack.

It would kind of be more like a shrine, right?

A shrine where the cult members worship.

As long as you got a membership card.

And that is why Kirkland's signature is the best idea yet.

Coming up on the next episode of The Best Idea Yet, put out your biggest snack bowl because we're talking goldfish crackers.

The goldfish crackers.

Follow the best idea yet on the Wondery app, Amazon Music, or wherever you get your podcasts.

You can listen to every episode of The Best Idea Yet early and ad-free right now by joining Wondery Plus in the Wondery app or on apple podcasts before you go tell us about yourself by filling out a short survey at wondery.com slash survey

the best idea yet is a production of wondery hosted by me nick martel and me jack kervici kramer and hey if you have a product you're obsessed with but you wish you knew the backstory drop us a comment we'll look into it for you oh and don't forget to rate and review the podcast our senior producers are matt beagle and chris gotier peter arcuni is our additional senior producer our senior managing managing producer is Nick Ryan and Taylor Sniffin is our managing producer.

Our associate producer is H.

Conley.

Research by Hannah Ward.

This episode was written and produced by Katie Clark Gray.

We used many sources in our research.

A few that were essential for this episode were The Cult of Costco by Phil Waba for Fortune.

How Costco Became the Anti-Walmart by Stephen Greenhouse for The New York Times.

Sound design and mixing by C.J.

Drummeler.

Fact-checking by Molly Artwick.

Music supervision by Scott Velazquez and Jolena Garcia for Freeson Sync.

Our theme song is Got That Feeling Again by Blackalack.

Executive producers for Nick and Jack Studios are me, Nick Martell, and me, Jack Ravici-Kramer.

Executive producers for Wondery are Dave Easton, Jenny Lauer-Beckman, Aaron O'Flaherty, and Marshall Louie.

It's your man, Nick Cannon, and I'm here to bring you my new podcast, Nick Cannon at Night.

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