COSTCO ENHANCES FRESH OFFERINGS WITH NEW PRODUCTS

ALICIA COMSTOCK ARTER

BELLEVUE, Wash. (FNS) - Costco Wholesale Corp. plans to build sales in fresh and prepared foods this year with a number of initiatives, the company said at its recent annual meeting here.

Augmenting its successful rotisserie-chicken offering, the company expects to roll out ready-to-eat ribs and hot chicken wings nationally, Costco executives told SN after the meeting. The products, which had been in a limited test, will be introduced as the Issaquah, Wash.-based retailer makes room for the necessary cooking and heating equipment, the executives said.

In addition, several baked goods developed in the company's new Hillsboro, Ore., store will be sold nationally in 2006. The products, which were on display at the annual meeting, include cream puffs, tiramisu and handmade chocolates. The chocolates are slated to be launched in time for this year's Christmas holiday season. The oversized cream puffs, made with Bavarian cream, will be rolled out this summer and are expected to be priced at $9.99 for a 15-count box. The tiramisu is scheduled to launch in March or April. A 78-ounce uncut portion in a plastic shell container will retail for $16.99.

Another change projected for the company's fresh offerings: Its private-label Kirkland-brand organic milk will cut its milkfat content in half, to 1%, officials at the meeting told SN. Customers have indicated they prefer the lower-fat offering, officials said.

"We know that our members have been requesting a lower fat option and we would eventually like to have all varieties of milk available in organic when supplies will allow it," John Lee, Costco buyer, corporate food and sundries, told SN. "One of the primary reasons for transitioning to a 1% allows us to avoid duplication in our limited [stockkeeping unit] environment.

"Currently, most regions carry a whole, a 2% and a non-fat offering in the milk section," Lee added.

Sourcing for fresh produce will continue to be global in 2006, with an interest in both large and small producers and in sustainably raised and organic fresh foods.

Costco's Tracy, Calif., meat-processing facility, which opened in 2005, will double the retailer's capacity for producing ground beef, the company said.

Critics of farmed salmon spoke up during the meeting, voicing concerns over health and environmental issues with salmon farming operations. Jeff Brotman, Costco's chairman of the board, said Costco takes these concerns seriously and would address the issue.

Another large growth area for 2006 will be fine wine. Costco is currently selling $72 million a year in that category, making it the largest single wine merchant in the United States, said Jim Sinegal, president and chief executive officer. It is the top retailer in the world for luxury brand Dom Perignon.

In nonfood grocery areas, the successful introduction of popular items such as Kirkland Signature Beauty Bar soap, KS by Borghese cosmetics and Kirkland Signature diapers added fuel to overall growth.

Costco officials reiterated that they will continue their strategy of not offering loss leaders, focusing on maintaining profit margins on every item.

The company plans to open 30 new warehouses in 2006 in the United States, Canada and the United Kingdom. Costco currently has 471 warehouses worldwide.

While expansion in Europe and Australia may occur after 2006, no plans are in the works for expansion into Latin America, Southeast Asia and India, according to Sinegal.

During the fiscal year ending Aug. 28, 2005, sales were $51.8 billion, an increase of 10% over the previous fiscal year.

Sinegal cited customer satisfaction, merchandise quality, a "treasure hunt atmosphere" and the fact that Costco has the "nimbleness of a small company" as continuing strengths.