PRICE/COSTCO UNVEILS KIRKLAND LINE

RICHARD TURCSIK

KIRKLAND, Wash. -- Price/Costco here has entered the premium private label domain of the supermarkets with its new Kirkland Signature line.

The line spans about two dozen items, including chocolate chip cookies, imported chocolate truffles, cranberry juice, trash bags, soft-serve frozen yogurt, diapers and baby wipes. But Kirkland Signature is not just in grocery. The label is also being applied to items as diverse as men's lambswool sweaters, tires and even Nativity scenes.

Price/Costco officials declined to be interviewed by SN; however, the debut of the Kirkland Signature brand was written about extensively in last month's Price/Costco Connection membership newspaper.

"The Kirkland Signature label signifies that the quality of these products is as good as, or better than, established national brands -- at a much lower price," according to the Price/Costco Connection.

The flier said Kirkland Signature is an offshoot of Price/Costco's successful existing private-label program, which included the Simply Soda, Nutra Nuggets dog food, Wintree detergents and Hattie Brooks candies lines. These brands either have or are in the process of being converted to Kirkland Signature.

Securities analysts and industry consultants familiar with the company generally had praise for the line.

"Price/Costco has been developing this Kirkland brand all year. They have added the Signature part to it to bring a little bit of a more upscale cachet to the brand. They are focusing on a number of core categories that make sense to them," said Barbara Miller, a retail analyst at Alex. Brown & Sons, Baltimore. "They want to have a product that is proprietary, that they can only get at Price/Costco and one that they can either pass savings along to the customer in the form of lower prices or get some extra margins. They are doing a combination of the two."

Miller said Price/Costco has done a good job with its private label, with Simply Soda accounting for more than 13% of its soda sales and 20% of unit volume.

"Price/Costco's overall private label is about 7% to 8% [of sales], up from about 5% last year. It is likely that it could get up to about 10% of sales, but they are not about to turn into a private-label place," she said.

A securities analyst, who did not want to be identified, said that while the line is definitely of a high quality, "Kirkland Signature is likely to be a depressant on near-term sales growth because they are taking a name brand product and replacing it with another that is about 30% less per unit in cost to the consumer. But the gross margins have gone up."

William Spencer Jr., president, Gage Marketing Group, Minneapolis, said private label may help staunch the decline in same-store sales that membership clubs have been experiencing of late. But he warned that the line might not be well-received by the company's business members who are buying the products for resale.

"Up to 20% of Price/Costco's volume is from mom-and-pop stores who buy the products for resale, and they may be wary of buying products with a name that is not familiar to the general populace," he said. He noted a private label often has to compare itself to several national brands to be successful, and that most membership clubs only carry one or two brands in a given category.

But Miller said, at best, Kirkland Signature will only represent up to 10% of volume, far below the supermarket level of private label.