
Costco CEO Craig Jelinek Leads the Cheapest, Happiest Company in the World - prostoalex
http://www.businessweek.com/articles/2013-06-06/costco-ceo-craig-jelinek-leads-the-cheapest-happiest-company-in-the-world
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westicle
Costco is just starting to establish itself here in Australia. There is
currently one store in my city (Melbourne). I personally know people who
travel 40+km to shop there so they are doing something right. I understand
that more "local" stores will be opening soon.

I'm not sure how the focus on pay & conditions translates across the pacific
however; our national minimum wage for casual workers is already AU$20.34
(US$18.54) and we have universal healthcare. So I'm guessing the relative
benefits of working for Costco are lower as compared to in the USA.

~~~
russell_h
I grew up in Anchorage, Alaska, and its not uncommon for people who live in
remote areas of the state to travel hundreds of miles to go to Costco. Mind
you, they don't exactly have a local grocery store for the most part, but its
interesting how widespread that usage pattern is.

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kevingadd
That probably ties in nicely with Costco's emphasis on extreme bulk sales. If
the nearest Costco is hundreds of miles away, at least you can buy a month+
worth of most supplies while you're there and load them all into your vehicle.

~~~
BigTigger
Also an Australian, Costco is also a single location here, 20km away. My house
travels out there once every ~3 months for everything and spend ~$500

The only things we really buy from the supermarket are week to week things
like meat etc.

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bane
Costco is also interesting due to subtle non-uniformity between stores and a
steadily changing product line-up. I'm lucky to live in an area where I'm an
easy drive to 3 Costcos within 10-15 minutes and 2 more within 25-30 minutes
from my home and they all have subtly different products.

We'll find some item that we like there only for it to be completely gone 3
months later and never to return. While at another local Costco they have
palettes full of it. 3 months after that the product will disappear from all
Costcos and a different, but better one will show up everywhere. Things like
Wine selection will also differ quite a bit from store to store.

That or there will be sudden changes to the packaging of staple items in the
store for no real reason. Milk, for example, seems to get a packaging overhaul
every year or so.

Either way, even with limited choice, _over time_ the number of products you
might buy at a Costco turns out to be quite a few.

Other retailers, on the other hand, are surprisingly more uniform in their
product selection. The half dozen Targets in my area offer more or less the
same products and fit it all within 1 or 2 master floor layouts.

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twoodfin
I have heard that Costco is brutal with their suppliers and has no compunction
about dropping products if they can't get them at a price that makes sense,
given the limited number of SKUs they're prepared to stock. Their customers
are now more or less trained to expect this, but I think it's a definite
weakness in their model. If Amazon can reliably provide me with my "favorite"
detergent, I'm likely to forgive a few dollars a year in added cost.

Wine selection is probably a little easier to explain, given the bizarre maze
of the three tier system. Thank god for the 21st Amendment, but the way states
handle alcohol distribution makes me thankful for an expansive reading of the
Commerce Clause.

~~~
mikeash
I'm not sure that's a weakness so much as merely a difference.

Some people have a "favorite detergent". Other people, such as myself, just
want something of decent quality, and could not really care less what name is
on the container.

For you, Amazon's approach is better, because you're willing to pay more for
the specific item you want. For me, that's completely unimportant, so why
would I pay more?

The two companies are covering different niches in that respect. Nothing wrong
with that. No single company needs to be all things to all people, although I
suspect Amazon _wants_ to (and Costco does not).

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twoodfin
Sure. If you can live the "Kirkland Life", you are Costco's perfect customer.
But as the parent comment pointed out, their strategy puts them in a somewhat
awkward position. As a rule, you want your customers to love your products.
But then your business model requires that you take away products whether
they're loved or not. Indeed, if they're loved so much that your supplier
thinks they're entitled to a higher premium than an un-loved competitor, it's
the more popular product that goes! Even the Kirkland products are doubtlessly
farmed out to varying suppliers (with varying results).

You're probably right that there's a big market for consumers of "good enough,
consistency be damned". But I think a lot of Costco's market is after
convenience and "low enough" prices. If Amazon can hit "low enough" prices and
a wider, more consistent selection, Costco could be in trouble. Zero trips to
the store is better than one, especially when you don't need to supplement
Costco with other retailers to cover their gaps.

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mikeash
Costco needs their customers to love their products _in aggregate_ , but not
any one product in particular. They're good about quality, so I don't really
have to care about brands. If I want detergent or paper towels or whatever, I
just pick whatever looks good. If they pull one in favor of another, I don't
care. If you want to buy specific brands on any given trip, Costco isn't for
you, but if you just want something decent and don't care who made it, it
works out well. You don't have to love the specific brands, just the stuff
they carry in general.

I'm sure Amazon could cause a lot of trouble for Costco if they can match
their prices or come close, but I don't see that happening. I basically buy
three categories of products at Costco: frozen food, fruit, and non-perishable
bulk items like paper towels or toilet paper. I can't see Amazon ever coming
close on the first two, simply because the inherent costs of delivering
perishable items to the house are too high. They can pull off Prime because
they're delivering items that have no problem being in transit for two days,
but I can't see how they could deliver e.g. strawberries for a reasonable
price ever. I'd love to be wrong, but I don't see it happening.

~~~
jmduke
I think I agree with both you and the commenter to whom you're replying. My
general purchasing process involves:

1\. Go to Costco and purchase as many huge things in bulk as I can. People
like to equate 'buying in bulk' with 'pricing', but honestly for me its just
as much about the convenience: I don't care about saving $.50 on toilet paper
so much as I care about having to buy toilet paper only once a year. I'm picky
with some things (like hand soap), but like you said I know Kirkland products
are going to be good enough.

2\. For everything else, buy off Amazon/Target/TJ's.

One of the cues I'm surprised Costco hasn't taken is subscription-based
shopping (as in, I set up a list of X items that I can schedule for a pickup
every few months) that would make this process even better. Given the
decidedly non-marketing-oriented layout of their stores, I don't think they'd
miss the opportunity for up-selling.

~~~
twoodfin
_Given the decidedly non-marketing-oriented layout of their stores, I don 't
think they'd miss the opportunity for up-selling._

I think they're more marketing-oriented than you're suggesting. There's a
reason I have to walk by the big-screen TVs every time I walk in to my Costco,
and why they hire all those workers (who are contractors, no?) to give out
food samples. Come to think of it, at my local store, everything you might
want to "browse through", from clothes to books to seasonal stuff, is in the
low-shelved center of the store, while the "dependables" are in the back.

I'm sure they make money from the members who buy the same dozen things every
time they visit, but I bet they make a lot more from the folks who browse the
sample stations and who buy TVs on impulse.

Anyway, that counters my argument about Amazon, since they'll never be able to
hand out Bagel Bites!

~~~
mikeash
I wouldn't be surprised if Amazon eventually reached the point where they
start including samples in your shipments. "Based on your purchase history,
your e-mail traffic, and data from the webcam we hid in your shower, we think
you might like Product X. We've included a few, give them a try!"

~~~
dynode
I order TP and paper towels via Amazon prime and the other day I was shipped
gratis a bar of soap. It wasn't an accident, it was listed as a gift on the
invoice.

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mikeash
Fun. Clearly I'm behind the times. Either that, or it happened to me as well,
and I forgot, but that subconsciously prompted the idea.

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anigbrowl
Another company that treats its employees very well and enjoys similar success
(though as it's privately held, it's not as easy to analyze) is Trader Joe's.

~~~
Uchikoma
Astonishing as it belongs to the same foundation as Germanys Aldi, and Aldi is
not known for it's people management.

[http://en.wikipedia.org/wiki/Trader_Joe%27s](http://en.wikipedia.org/wiki/Trader_Joe%27s)

~~~
ssharp
I never knew Trader Joe's and Aldi's were related companies. I had jokingly
referred to Trader Joe's as the "Aldi's" or organic food stores, but never
thought the comparison was so close. I was mostly basing it off of the cheap
prices and smallish store sizes.

I've generally been impressed by Aldi's ability to maintain a quality shopping
experience while maintaining such low prices. Typically in the US, bargain-
type stores tend to skimp on things like cleaning, repairs,
merchandising/stocking, etc. This isn't really the case with Aldi.

~~~
brm
As I remember hearing it... Companies are willing to do white label products
for trader joe's because of the purchasing leverage of aldi

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LAMike
I remember investors getting mad at the CEO for paying his employees too much,
that had me confused as a 12 year old amatuer stock picker. Great company, my
friends work there and they love it

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victorology
Costco is one of 2 companies I truly admire. Always looking for more. Anyone
with other suggestions?

~~~
Ygg2
Curious to who is the second? Penny for your thoughts?

~~~
mwg986
I'd like to know too. Zappos? Just the first thought that came to mind. I
don't know that much about them but I have heard good things.

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ck2
low turnover = higher profit

longer term employees = more knowledgeable = better customer service

some decade walmart and target might get a clue about this

~~~
jmduke
The implication that Walmart and Target executives have a worse idea about
what's best for their business model than someone who reads an article about
CostCo is hilariously disingenuous.

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mikeash
The implication is that Wal-Mart and Target executives have a worse idea about
what's best for their business model than Costco executives, which is not
necessarily correct, but neither is it obviously wrong.

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Zelphyr
I'm happy to see that they're treating their employees well. I really am. And
I know this seems petty but; why the hell do they insist on starting Christmas
in August? I walked into my local Costco last summer and one of the first
things I see are Christmas tree's for sale. In August. I've grown to _HATE_
the Christmas holidays because of retail behavior like this.

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hayksaakian
Awesome company, I just hope it's sustainable.

Good pay + Low prices seems like a difficult combination

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mikeash
They've been around for almost 40 years and are highly profitable. You don't
have to "hope" it's sustainable, as it clearly is.

~~~
hayksaakian
I was also thinking about them in terms of tech, relative to the marketplace.

If Amazon decides to open "Costozon" will Costco be able to compete?

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mikeash
If you mean a giant retail store, I think Costco will do fine. They have a lot
more experience in that area, and they've done fine so far against existing
cost-cutting retailers like Wal-Mart.

