The numbers don’t lie—and for Issaquah, Washington-based Costco Wholesale Corp., the numbers are astounding. With more than $4 billion in beverage alcohol sales last fiscal year, the company has seen steady annual growth in wine, spirits, and beer, even from a huge base. New stores and new beverage alcohol departments have been added nationally and internationally on a yearly basis. Few retailers can match what Costco is doing, in both sales and scope. And few have the buying power to even try.
“We’re committed to the beverage alcohol category,” says Annette Alvarez-Peters, assistant vice president and general merchandise manager for beverage alcohol at Costco. “We show substantial increases and comps year over year. We’re disciplined in our approach to the business, and we’re committed to bringing exciting trends and new beverage products to our members on a regular basis.”
A membership-based warehouse club—with 94 million members worldwide—Costco has more than 530 stores in the United States and Puerto Rico and more than 750 total stores around the globe. Annual membership starts at $60 and provides access to all the stores and their merchandise, including a varied selection of wine, spirits, and beer. In the U.S., Costco has licenses to sell beer in 458 stores and can sell wine in 448 stores. In addition, 317 stores are licensed to sell spirits. Overseas, the company has an additional 162 licenses for wine and beer retail and 141 licenses for spirits.
Costco’s total annual revenue for fiscal year 2018, ending September 2, 2018, was $138.4 billion, a 9.7% increase over the year prior. Beverage alcohol sales at Costco were $4.4 billion last fiscal year, marking a 6% increase over the year prior. The company is one of the largest wine retailers in the world, with wine making up roughly half of its total beverage sales—more than $2 billion last fiscal year. Spirits and beer split the remaining half relatively equally.
Growth And Change
In her 20-plus years working in the beverage alcohol department at Costco, Alvarez-Peters has become a fixture in the retail drinks landscape. Her name frequently appears near the top of lists naming the world’s most powerful wine and spirits buyers, buoyed by the success of the program she now manages. Altogether, Alvarez-Peters has been with Costco for 36 years. She started in the drinks business in 1995, when she transitioned from the electronics and audio department to become a wine and spirits buyer in Costco’s Los Angeles regional office, covering Southern California and Hawaii. She moved to the company’s Washington headquarters in 2005 when she was promoted to assistant general merchandise manager for wine, spirits, and beer, and in 2016 she was promoted to assistant vice president and general merchandise manager for beverage alcohol at Costco. She now manages the company’s 11 beverage buyers.
“I’m very much involved with all the beverage alcohol categories, and my role continues to grow as the business grows,” Alvarez-Peters says. “I develop strategies with the team and implement corporate directives; lead the development for Costco’s private label, Kirkland Signature; and develop and strengthen our supplier and distributor relationships.”
It’s a big job these days, as beverage sales are growing steadily at Costco. The company’s beverage alcohol sales increased by more than the industry average for fiscal year 2018 over 2017, and Alvarez-Peters notes that for the first half of fiscal year 2019, Costco’s drinks segment is outpacing the overall industry. “Our sales are growing year over year,” she adds. “We have new warehouses opening and, as laws have changed, we’ve been able to add beverage alcohol licenses to some existing warehouses.”
Last fiscal year, Costco opened 21 new warehouses globally, including units in California, Michigan, Nebraska, Minnesota, Florida, Washington, Texas, South Carolina, and Georgia. Fifteen of those new units sell wine, spirits, and beer, and four additional new units sell only beer and wine. In all, Costco has licenses to sell wine and beer in 45 states and spirits in 35 states. Alvarez-Peters says California, Florida, and Washington are some of the company’s largest-volume states for beverage alcohol sales and that those markets are still posting strong increases. Additionally, markets like Colorado, Alaska, South Carolina, Nevada, and Washington, D.C. are doing well. For this fiscal year, Costco expects to add an additional 23 locations in the United States and overseas. New units have recently debuted or will open soon in California, Maryland, Texas, Iowa, Nevada, Alaska, Florida, and New Jersey, and later this year the company will unveil its first store in China.
Competition from other alcohol retailers is strong throughout the country, according to Alvarez-Peters, and she adds that internet competition is also a factor. While Costco doesn’t do online beverage alcohol sales in the United States, it does offer beverage alcohol e-commerce in Mexico and the United Kingdom. Alvarez-Peters says the company is currently looking at the possibilities for domestic online beverage sales.
The Treasure Hunt
Costco’s business model involves displaying limited SKUs and fostering a “buy it before it’s gone” mentality. In beverage alcohol, that means highlighting specific wines, spirits, and beers for a short amount of time and then swapping in new labels. “Our constant goal is to bring newness and excitement to our members,” Alvarez-Peters says. “We keep our eyes on trends and test a wide range of items throughout the United States. Our buyers share ideas and concepts while looking for the best quality and values to bring to market.” Overall, Costco stores sell roughly 4,000 total product SKUs. Within that mix, the drinks department is relatively small. On average, the store’s beverage areas showcase about 150 wine SKUs, 45-60 spirits SKUs, and 14-18 beer SKUs.
The wine trends at Costco reflect larger trends around the country. Alvarez-Peters says domestic Cabernet Sauvignon, Pinot Noir, and red blends do well, and that imported rosés, Proseccos, Bordeaux, and wines from Italy, Argentina, and Spain garner a lot of interest. The company’s top-selling wine labels include Meiomi Pinot Noir ($15-$21 a 750-ml., depending on location), La Crema Chardonnay ($13-$20), Kirkland Signature Cabernet Sauvignon ($8 a 1.5-liter), Ménage à Trois red blend ($7-$11 a 750-ml.), and Kirkland Signature Asolo Prosecco ($7).
Costco’s proprietary label, the Kirkland Signature brand, is well-received in stores. The company developed its first Kirkland Signature wine in 2003 and added spirits to the portfolio in 2007. Today, Kirkland Signature has 30 wines and 20 spirits offerings, though many are only available at certain times of the year. “Kirkland Signature alcohol products do well for us,” Alvarez-Peters says. “Our members are loyal and have a high trust level for Kirkland products. We’re proud of the quality and value we develop with our supply partners.”
In spirits, Alvarez-Peters says Bourbons and other whiskies remain hot, and adds that Tequilas and cordials are also doing well. The company’s top-selling spirits include Tito’s Handmade vodka ($26-$30 a 1.75-ml., depending on the market), Kirkland Signature American vodka ($13), and Jack Daniel’s Tennessee whiskey ($29-$40). Meanwhile, in beer, Mexican brews and local craft labels dominate. Costco’s top-selling big-name beers include Corona ($22-$33 a 24-pack of 12-ounce cans) and Heineken ($22-$32). For local labels, Firestone Walker Brewing Co.’s 805 Blonde ale ($26) is popular in greater Los Angeles and Bell’s Brewery’s Two Hearted ale ($34) does well in Michigan.
“We continue to seek out local items for wines, spirits, and beers in each individual market,” Alvarez-Peters says. “This may be for only one warehouse or for the entire state. The local items we find from small producers create excitement and the selections vary from warehouse to warehouse to closely match our demographics.”
Rare imports and hard-to-find beverage products are also a priority. Alvarez-Peters points to Japanese whiskies from Yamazaki and Hibiki, as well as a line of Napoleon XO brandies from Aiko Importers that are packaged in animal-shaped glass decanters, as examples. Seasonal specialties are a draw, too, like last summer’s Slim Chiller alcohol-enhanced cocktail ice pops, which Alvarez-Peters says were quite popular.
With more than 94 million members worldwide, Costco stores have a huge customer base. “We have more consumers walking through a Costco warehouse every day than any other retailer,” Alvarez-Peters says. “Our foot traffic is what sets Costco apart from other beverage alcohol stores.”
Costco’s average member is 52 years old and boasts an annual household income of more than $92,000. This older, affluent crowd is a boon to the company’s beverage business, although Alvarez-Peters notes that in recent years there has been a noticeable increase in younger and more diverse Costco members. She also says that many shoppers view Costco as a grocery store—as people are shopping for meat, seafood, and cheeses, they then walk through the beverage alcohol area to make a complementary purchase.
“We’re a very limited-SKU environment so we know we can’t be everything to everyone,” Alvarez-Peters says. “We’ll keep our selection fresh and exciting, and constantly rotate items in and out of our system. Costco’s beverage alcohol department has gained a good reputation among our members. We strive to excite them with unique and interesting items in the wine, spirits, and beer arena.”