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Impact Seminar Snapshot: Annette Alvarez-Peters On Costco’s Beverage Strategy

March 23, 2015

As one of the U.S. market’s dominant beverage alcohol retailers, Costco holds enormous sway in connecting consumers with drinks brands from across the industry. Annette Alvarez-Peters, the retail giant’s assistant general merchandise manager, beverage alcohol, addressed the 39th Annual Impact Marketing Seminar on March 19 to discuss the chain’s alcohol strategy.

Now the second-largest retailer worldwide with sales of $110 billion and 671 locations, Costco did $3.4 billion in beverage alcohol sales in its last fiscal year, ended in August. Alvarez-Peters noted that while Costco has grown exponentially since she joined the company in 1983, its merchandise philosophy has stayed largely the same. “We have a very limited selection, and 80% of sales are done with 20% of the items,” she said. “Our goal is to offer substantial savings on all items and constantly rotate in new products.” The smaller selection helps the company show a large variety of merchandise throughout the year while saving on inventory costs, she explained.

In beer, wine and spirits, Costco carries a total of 250 SKUs, with the majority of items in rotation, creating a “treasure hunt” atmosphere rather than appealing to brand loyalty. “We’ve found that our members are prepared to give up brand loyalty for a deal on another quality item. We buy items, not categories, wherein each item stands on its own,” Alvarez-Peters said, adding that margins are capped at 14% and a key objective is to trade consumers up. Costco’s Kirkland Signature private label brand represents less than 20% of the group’s beverage alcohol business, she added.

While noting that competition in the retail segment continues to increase, Alvarez-Peters expects Costco to remain true to its philosophy—and its beverage alcohol strategy to remain constant—looking ahead five or 10 years. “There’s always the temptation to add SKUs,” she said. “We continually remind ourselves that we’re not in the full-line retail business. And with that, we need to take an ‘intelligent loss of sales’ approach instead of expanding our assortment in order to compete.”

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