In the world of wine retail, few companies can compete with Costco Wholesale Corp. Amid a tumultuous year of navigating a changing retail climate during a global pandemic and new leadership at the head of its beverage alcohol sector, the big-box retailer could have easily suffered during 2020. Instead, Costco’s beverage sales continued to grow. The mega-company has been a leader in off-premise beverage sales for years and, like many of its competitors, Costco saw huge gains last year as buying trends shifted heavily toward retail during the height of the Covid-19 pandemic.
“Alcohol sales were very strong in 2020 and we’re continuing to see healthy double-digit increases,” says Chad Sokol, Costco’s assistant vice president and general merchandise manager for beverage alcohol. “We believe we will continue to have robust sales through 2021.”
Costco’s global beverage alcohol sales topped $5 billion in 2020, up from roughly $4 billion in 2018. Over the last decade, the company’s alcohol sales have essentially doubled, as they were posted at $2.3 billion in 2010. Wine continues to comprise half of Costco’s total beverage alcohol sales, equaling roughly $2.5 billion last year, followed by spirits at 30% and beer at 20%. Those numbers have shifted gradually over the last ten years, as spirits and beer used to split equal 25% shares of beverage revenue in 2010. Maintaining such strong and growing drinks sales for that long is an amazing feat.
“We definitely think the beverage alcohol department is a destination for Costco members, especially for our Kirkland Signature proprietary items that aren’t available elsewhere,” Sokol says. “We hope to continue to build on our current success while focusing on quality, value, and excitement in beverage. Our goal is to always try to over-deliver in these areas.”
The Covid-19 Effect
Like all retailers, Costco had to adapt quickly last year as the Covid-19 pandemic evolved and continuously affected the retail tier. Along with social distancing protocols, stores in many states had to limit their shopping capacity, preventing guests from entering the spaces and wreaking havoc on the hospitality portion of retail. At the end of 2020, Costco’s total global sales were more than $163 billion and the company had 803 stores around the world. Of those, 455 sell wine, 337 sell spirits, and 496 sell beer. Costco managed to open 13 new stores in 2020 and surpassed 100 million members worldwide. Sokol believes that early in the pandemic, the company’s alcohol sales benefited from shoppers coming in for necessities like toilet paper and canned goods, but he notes that the stores’ drinks sales remained steady even as Covid-19 shopping patterns changed.
“Initially, our alcohol sales increases were driven by the additional foot traffic of members who were coming in for essential items,” Sokol says. “But after the lockdowns expanded and on-premise business slowed down, we really started to see increased sales in spirits and wine. Initially, we were a few weeks behind the trends of other off-premise retailers, but as we moved through last summer we started to see increases across all beverage alcohol categories, especially domestic fine wine and sparkling wines. Overall, our alcohol sales increases were close to double what we initially had planned for last year, prior to the start of Covid-19.”
Many of Costco’s top wine and spirits performers in 2020 came from its proprietary Kirkland Signature label. Sokol notes that several products in that portfolio gained a lot of traction last year. Along with upscale sparkling and domestic wines, he adds that RTDs, hard seltzers, and 3-liter boxed wines also showed solid growth last year and that wine advent calendars sold out very quickly during the holiday season. He notes that many members traded up in price point while shopping during the pandemic. Costco’s top-selling wines include Kirkland Signature DOCG Prosecco ($7 a 750-ml. bottle) and Kirkland Signature Ti Point Sauvignon Blanc ($7). “We’re really pleased to see sparkling sales grow again,” Sokol says. “One of the unintended benefits from last year was our access to new wineries that were previously hesitant to sell to Costco.”
In spirits, Tequila and whiskies, especially Bourbon, performed well last year, and Sokol adds that he also saw strong growth in single malt Scotch, despite tariff issues. That said, the company’s top-selling spirits remain vodkas—Kirkland Signature American vodka ($13 a 1.75-liter) and Tito’s vodka ($29). In beer, Sokol says craft labels and hard seltzers are propelling the category forward. Costco’s best-sellers in beer and RTDs include Kirkland Signature Hard Seltzer ($18 a 24-pack of 12-ounce cans) and Corona Extra ($25 a 24-pack of 12-ounce bottles).
“In addition to RTDs, we’re also seeing great growth in vermouths, cordials, and other items that we didn’t do much business in before, as more people transitioned to making cocktails at home,” Sokol adds. “Kirkland Signature has been on fire over the last year. We’ve been working on new label designs for several existing Kirkland items and we’re developing many new offerings that we’re excited about.”
Online shopping has also been a key part of pandemic life for many people over the last year, and Costco is testing the parameters of that platform. The company now offers wine for delivery in California through the Gourmet Foods section of its website, Costco.com. Costco also partnered with Instacart in 17 states to make beverage alcohol delivery available for shoppers who use that service.
“I’m hoping we’ll continue to expand our online partnership with Instacart into more states,” Sokol says. “There’s so much opportunity in this area and I think everyone is hopeful that states who relaxed restrictions (for alcohol retail, delivery, and takeout) during Covid-19 will continue to make these changes permanent.”
Embracing change has served Costco Wholesale Corp. well over the years, especially in its beverage alcohol department. The company’s philosophy has always been to restrict its number of SKUs and to create a treasure hunt atmosphere that encourages customers to buy what they see today because it may disappear tomorrow. “Offering limited SKUs may seem restrictive from the outside, but having only a few options for any given category, especially fine wine, is less overwhelming and encourages our members to try new items,” Sokol says. “We rotate items frequently and focus on the treasure hunt. With our increased sales volume last year, many rotations sold through much quicker than we expected, which helps us achieve the goal of always having something new each time our members shop with us.”
Last year was Sokol’s first at the helm of Costco’s beverage department. He replaced Annette Alvarez-Peters, who retired at the end of 2019 after 25 years in Costco’s beverage alcohol division. Alvarez-Peters is credited with building Costco’s wine program and making the company a dominant force in beverage retail, and Sokol looks forward to continuing and furthering her efforts. He’s been with Costco for 27 years, having spent most of his time in the company’s Food and Sundries division, which includes beverage alcohol, though he wasn’t involved in the drinks business until about ten years ago. Sokol shadowed Alvarez-Peters before she retired.
“I’m fortunate to come into the alcohol department at a time when momentum is strong and we have a good reputation in the industry,” Sokol says. “Our core business strategy will remain the same, with a focus on quality, value, and limited SKU offerings. I feel very strongly about creating excitement and innovation.”
Sokol expects Costco’s beverage alcohol department to continue growing steadily and he says the company is looking to global expansion, as it plans to add units in new countries over the next several years. Costco expects to open 20 new stores this year around the globe and relocate three additional units.
“The alcohol department has always been a strong area of focus for Costco,” Sokol says. “We will continue to be innovative and exciting. We have a strong team of regional and corporate buyers who are focused on new brands, trends, and treasure hunt items. Even after bars and restaurants fully open again, I think we’ll continue to have strong sales, as we’ve picked up market share over the last year. We feel confident that our beverage sales will remain strong going forward.”