Interview with Future Founder and Jeremy Smith, Launchpad Group USA | #39
We discuss what it takes to successfully launch a brand in Costco, how to deal with failure, and why a college degree is not necessarily required for success.
Interview with Future Founder and Jeremy Smith, Launchpad Group USA | #39
We discuss what it takes to successfully launch a brand in Costco, how to deal with failure, and why a college degree is not necessarily required for success.
What separates Costco from traditional grocers? The guests today are the OGs of the industry with much value in their pockets to share with everyone in this episode’s conversation. Jeremy Smith and Terry Meyer provide tips on navigating the Costco of today to generate sales and find an expert to help set the business to success. Jeremy explains how Costco is a value sale and why they focus on value at cost. Moving along the innovation chain, the early adopters of Costco helped the brand succeed in the market. Moreover, Terry advises you to buy what you need and build in an appropriate lead time. Tune in to this episode to gain more insights from Jeremy and Terry.
Cool conversation coming your way with two of the OG in the industry. We are going to spend a little time talking about sales and Costco and all kinds of stuff. Before I turn it over to Terry and Jeremy to introduce themselves and kick us off, there are a couple of things I want to call out. With our partnership with New Hope and the Natural Products Business School, we got a lot of workshops coming up. One was putting profit before growth and cash before everything. We have another one coming up on Founder Wellbeing. You can check it all out at NewHope.com or our website, www.TIGBrands.com. Come and participate because we’re talking about some important stuff.
The other thing I want to mention is that both these fine gentlemen joining us are part of our TIG Collective. This is an innovative way that we are unlocking the wisdom of this industry and putting it around young entrepreneurs and businesses in a meaningful way. You get 2 or 3 of these wise humans assigned to you to work with you on a biweekly basis in their knowledge and network. They help you strategize and think about how to grow the business. If you are interested in learning more about the TIG Collective, please reach out to us. That is it for my commercials. I’m going to kick it off and talk a little bit with each of you first and ask that you spend a second to introduce yourself and your background, then we’ll dive in. I will start with you, Terry.
Thanks, Elliot. I appreciate being here. When somebody calls me wise, it is followed by “guy” behind it, so I appreciate the brevity and the moniker. I’m the Vice President of Rhythm Superfoods. We manufacture and sell a host of vegetable and fruit snacks throughout the United States and different countries. I have been involved with that company for going on eight years. There is a lot of channel development. I have a fair amount of business with Costco, which is where I met Jeremy a few years ago. I’m proud to call him somebody that has given me a lot of advice, a trusted advisor and friend.
I have also served time in larger companies such as Unilever and Tropicana/Pepsi. I have seen a number of companies go through the sale process. We are working on some vibrant growth, new products, and a lot of innovation. We are trying to change and shift the landscape of small companies and natural foods. As all of us are seeing a lot of changes in the industry, this is an important conversation to have. Hopefully, I can add some color to it. The landscape in which you engage with Costco has certainly changed over the past couple of years. Along with that, there are a lot of things to talk about with Costco because there are a number of different ways to skin the cat. I’m happy to be here. I’m happy to help.
Thank you very much for taking the time. I appreciate your willingness. It is going to be an important conversation. There is a lot to cover here. Jeremy, the floor is yours.
Thank you. First of all, I’d like to say that I don’t skin cats, in case some of you were worried. We love cats and dogs. I just wanted to get that out of the way. I’m not associated with skinning cats. My name is Jeremy Smith. I’m the Founder of LaunchPad. I have been in the brokerage business for 24 years. I only focus on Costco. I could make a stab at saying something nice about Whole Foods, but I don’t know if it would be true. My entire life, for the very first 24 years of my career has been working with one retailer. It is nice because I don’t know how people like Terry and anyone else out there are able to deal with all the different buyers that have all the different cultures from all around the US.
I only have to deal with the world of Costco, which is crazy enough, but at least I can focus on one. I enjoy that, especially since I’m getting older. It is easier to deal with one vendor than to fly around to a whole bunch. I started a business in the design and advertising world. I spent half my life in that until I got into the brokerage business.
As Terry did point out, the Costco of today is not the Costco that most of your board members dealt with or may have sold to. Especially after the pandemic, there have been a lot of major changes in Costco in how buyers interact with vendors. Hopefully, we will talk a little about that because it is a completely different company in many ways. We also had a major shift when Jim Sinegal stepped down as the head of Costco, and Craig Jelinek took over. Costco has become much more of a private-label player with Kirkland Signature under Craig Jelinek than under Jim Sinegal. We are headed for a new president that will be announced. That’s it.
There is a lot to unpack for both of you, but let’s start with you, Terry. What has Costco meant for Rhythm? At what stage did you guys decide to make the jump into it? How did you know you were ready to do it?
We had started doing business with Costco on a small basis before I joined the company probably 9 or 10 years ago. It was around when kale chips became popular. It was the first and longest-running. We had dabbled in a few rotations. Costco has got an allure to it. If anyone in their company wants to generate some quick revenue and get their products out there, they go after Costco. Costco shows up at your trade show booth. You engage with Costco. I don’t know if you would have run after them into the building to try and do business right away, but we had the opportunity to do it.
It gave us some proof of concept in the natural products world. There were a lot of companies trying to get some traction outside of the regular popcorn and potato chips that seemed to dominate the Expo West floor twelve years ago. We made a concerted effort in it after we started to diversify our portfolio and got up into a range of revenue where Costco wouldn’t deliver us a body blow if they decided to do something and then not do something.
For us, Costco has been a great brand builder over the past few years. It was a fantastic outlet for us, especially during the pandemic because we had relationships. They were having problems with the supply chain, and we had a good relationship with them. We didn’t have problems with our supply chain. We had an item in virtually every region and the ability to give them as much as we could make, and they could take as much as we could give them. That is fantastic. It kept us alive during that time.
We made a few mistakes. Everybody makes mistakes. We deal with Costco because of the rapid escalation of sales that it can provide. We did that. We learned a few things. One of the things is you can never be too prepared to try and make money at Costco. When you think you can get by with 8 to 10 percentage points of contribution margin, that has changed. You need to be a little more cognizant of what Costco will do. If you make one mistake or err on one side, it can suck the profitability right out of it, but if you don’t, it can boost your sales and revenue. It can help and fund you to get to that next level in the life cycle of your company.
It meant a great deal to us in terms of being able to introduce a new product and scale quickly. Jeremy talks about all the other brochures in the world, the Whole Foods, the Krogers, and everybody else. We are launching a product going into Whole Foods. We are also taking the same item to Costco. We need 5,000 pounds to supply the first couple of vendors. For our first Costco rotation, we need 30 tons. There is a difference in the supply chain, what you have to do to prepare, and how you can negotiate with your vendors when something like that happens.
It is a fortunate event when the two things happen at the same time. It is an unfortunate event when it happens. It works well. The item you have fallen out of favor with a member. Something else comes in and kicks it out. If you get a distribution of an item, and all of a sudden, Costco stops ordering, it is a gut shot. People are ill-prepared for that eventuality. Even though Costco tells you how much of your business they want to be, Jeremy, you can back me up on this, but most people don’t pay attention to that. I don’t know if Costco pays attention to that after asking the initial question. It is great when it is boom time, but it is also frightening when it is bust. That is the thing that small companies have to consider.
I have a conversation with somebody. They said, “We like to make this Costco rotation successful even if we lose money.” They saw the shock on my face. They said, “What if we don’t fund it enough and it doesn’t work?” I was like, “What if you overfunded and it does? Think of what that means to your business if you are losing one percentage point on every bag that goes out the door, and they want a million bags. It is untenable.” It has been a masterclass in the supply chain, margin attainment, negotiating with vendors, trucking, film, and brokers. That is the high-level view.
That is why I didn’t add the guy after the wise. What you did was drop a lot of wisdom there. A question I ask a lot of our early entrepreneurs constantly when they are contemplating Costco is, “What if it works? Are you ready? Can the business absorb it? Will it be meaningful in the right way to the bottom line?” The second is, “What if they stop?” You can’t put yourself in a situation where you have so much concentration and they stop because they will put your business at risk. Jeremy, how does a brand evaluate if they are ready for a rotation? What should a brand do before they pick up the phone and come to you saying, “Would you consider helping us?” How do they know they’re ready to go?
I don’t think most early brands understand Costco well enough to make that decision. The smarter of all the brands are the ones that come and say to me, “Help me understand what I need to do to be ready for Costco.” There is a term I use called, “Are you prepared to move at the speed of Costco?” That is once you are approved as an item because they don’t always move quickly, although they have the ability to move quickly on an item.
One thing that separates Costco from traditional grocers is that Costco can be in and out of an item in four weeks if necessary if the item dies or the category changes or Costco changes. The first thing I tell clients is, “You’ve got to look at whether or not you have the margins in your product to effectively price your product so that you are competitive at Costco.”
Most retailers focus on value at retail. Costco focuses on value at cost, which is a formula that Costco created that is based on whatever your lowest price in the marketplace is, whether it is a distributor or you are selling directly to a retailer that you are offering must be 20% below that. If you were selling to KeHE for $10, you have to sell to Costco for $8.
That is the first place we start before we head into the supply chain. If you can’t get to those margins, then you are not going to be competitive at Costco because the member has to pay to get into the door. The member is in the hole the first day they buy a Costco membership. There has to be a value there. That is what Costco is. It is a value sale. I’m buying an item from Rhythm at Whole Foods, and Costco will carry 1 SKU or 2 SKUs. The member has to see that in this much larger format bag, there is enough value there. Otherwise, they are going to continue to buy it at Whole Foods because it doesn’t make sense.
The penalty for the consumer is they have to buy one flavor usually, and they have to buy a very large bag. It is a lot more products to go through. You have to understand some products are made to sell in high volumes like chips. Chips are good examples. Those are easy to move in 14 to 21 days. If you are going to be in there every day, you got to be able to move a pallet in 14 to 21 days in each warehouse that you’re in. Some products, and you have to be honest with yourself, don’t move quickly enough. In some categories like sauces and spices, you might sell 1 or 2 a week at Whole Foods. That is not going to make it at Costco. It is too slow on return on velocities. You are going to wind up with a 28-week supply at Costco.
You got to start looking at those things first. You got to then get through the plant audit, which Costco has probably the toughest plant audit of any retailer. For some companies, it is too early a stage in their first year or two because they don’t have the buying power with their co-packer or supplier of ingredients. They have to wait until they at least get to $1 million to $5 million in sales before they have enough juice in the game to get the type of discounts that are necessary.
As Terry pointed out, the last thing you want to do as an early-stage company is to take on a low-margin, high-volume business that sucks your margins out the door. If you are not prepared internally at this point, you might as well have taken that money and reinvested it in Whole Foods or expanded out into Erewhon, Sprouts, or some other market. Wait a year and then go forward with it. Sometimes companies are desperate. They want to get to their sales numbers quickly.
The last thing to understand is that Costco is loyal to only one group in its ecosystem, and that is the member. The member has all the power. Their goal is to service the needs of members, not you as a vendor. While they do treat vendors fairly, most of the time, their main commitment is to that member and making them happy. They will cancel an item at any time.
If you ever spend time talking to your friends that shop at Costco, they will tell you, “The thing I hate about Costco is my favorite chips or my favorite ice cream might be here tomorrow. I may walk in and it is gone.” Costco loves having that because it forces the member to feel like, “I better buy it today because it may not be here.” There is a sense of urgency. Just so that everyone understands, they don’t just cancel small vendors. Chobani was canceled for a while because Costco wanted to test other brands. Chobani was the number one yogurt SKU. It wasn’t that Chobani was underperforming. They were overperforming.
What’s different now is 15 or 16 years ago, Costco’s private label business, the Kirkland Signature label, was about 12% to 15% of their business. It is now approaching 30%. Craig Jelinek has talked about taking it up to 40%. Some of the threat isn’t your competitive set, but it is that they will bring in a larger vendor who can develop a Kirkland Signature item for them. The bar category has been disrupted. It used to be a lot like the chips, where there were a lot of rotations, but Costco does most of the business now in Kirkland’s Signature Bars versus Clif Bars. They own the category now. It doesn’t allow for a lot of the opportunities that used to be there ten years ago.
I will come to you, Terry, on this one. What do you do strategically specifically for Costco in terms of offering packs? What do you do to keep them interested in you?
We worked with Costco in the snack department for a while. Jeremy will tell you that for anybody that is in Department 12, which is the salty snack category, the threshold for success is much higher. We made a pivot to go after a different category where the threshold for success was much lower, but we still had the ability to sell what we were selling.
We started out strategically to offer Costco products that this department didn’t have a strong offering in. That was the first thing that we did that allowed us to have some success and some continued success once we made this pivot. The second thing we did was we got a lot of innovative items. The early adopters out there do shop in the Whole Foods and Sprout markets of the world. Some early adopters shop at Costco if the offering is right.
We took our focus and relied on trends and flavors that we knew had success. We did that with an item. We had tremendous success for a few years. It was on the short tails of a highly successful cauliflower category. We relied on some halo effects to give that item some validation. We worked with Costco on flavor.
One thing that I think Jeremy will support me on is if you work with a buyer at Costco, you work with a team of buyers. We routinely had access to the fruit and vegetable team, which doesn’t exist now because the buyers have all changed. We would sit in front of the fruit and veg team and we would have innovation sessions.
When the lead buyer, the food buyers, and the GMM lean into what you are working on, they got some skin in the game. They got their thoughts and desires in the item that you are producing for Costco. Sometimes that is not a benefit because the things they want to design don’t necessarily sell, but they got a lot of information on their side. They know what the trends are and what the members want. We kept buy-in from them as we moved along the innovation chain. That helped us get a lot of success over the past couple of years.
Even though an item went in and an item came out, the time is right for a lot of different things. It laid the framework for us to be the innovators in the category. That kept the relationship solid because even though an item stopped performing, the whole growth thesis behind vegetable snacks is still solid. It has been proven solid. It takes a little reinvention every while. It takes some innovation and smart people in the room to figure out how that fits into Costco. We relied on them as much as they relied on us to come up with items that fit the strategy. Tactically, we could move forward and have success or have the best chance for success.
The most unnerving seven days for any manufacturer is that first week when the product is on the floor because you see what is going to happen. You can have $800 a week on an item because people are interested in it, but it is the second and third weeks when people repeat their purchases, that tell you if an item is going to be successful. Those first couple of weeks is where the proof of the pudding is.
We have a question from Darren, “We hear a bit more about roadshows versus rotations and the pros and cons of those for early-stage companies.” Jeremy, I will come to you for that one.
I will tell you right off the bat that I am against doing roadshows for early-stage companies. They are expensive. No one makes money off of them. They are better for well-established brands because if you want to test different SKUs, it gives you some ability to do that. For early-stage brands, it is important to understand what the value of a roadshow is. What is it that the buyer doesn’t see in your brand at that moment that is requiring them to ask to do a pretest? That is what a roadshow is. It is a pretest of the items to see how they fall in.
Sometimes, when you are early on, one of the downsides to going to Costco early on is you don’t have enough data to support what your number 1, 2, or 3 flavor is. You have limited data. You got to have data from all over the country when you are calling on the Costco region. Certain flavors do well in certain regions, and others don’t perform as well. It is always important to know more than the buyer does about the actual category and your brand. Some early-stage brands haven’t built up the data internally yet to understand that.
I’m not going to mention their names, but they know who they are at Costco, but there are some buyers that do roadshows for the sake of roadshows. You don’t want to do that because you get a make sure you get a commitment, or if you are working with a broker and your broker doesn’t come to you with a commitment for the dollar amount of sales that you surpass at a roadshow, they will bring the item in. Ninety percent of the time, they won’t bring the item in after a roadshow unless it blows away the category.
You generally lose about $2,000 to $6,000 on the average road show if it’s a 4-day show or you are doing 5 or 6 roadshows. Costco loves roadshows because its members love roadshows. You have to think about what it is that you want to get out of this. Do you want to get a rotation out of this? Do you want to get an everyday item, and the odds of getting an everyday item at Costco are less than 1%, according to the data that we have created for brands that go into Costco? On LinkedIn, you will see a lot of brands that are in Costco. A lot of times, they are doing roadshows. The items never go in as regular items.
One part of your question was about rotations. That is where the supply chain comes in. Some vendors will complain, “I got a 52-pallet order from Costco. I’m excited about that. I did a total of 8 to 12-week rotation, but what is going to happen the rest of the year?” There is no guarantee when you are on rotation that you are going to get another item in no matter how well you do.
Rotations can drive a company crazy if they don’t have their supply chain set up with the right volume because you have to gear up for the increase in sales with no idea if you are going to get any more. The reality is that you have about a 5% to 6% chance of getting a second rotation, depending on the category. You also have to understand, whether it is a rotation or a roadshow, what the thresholds are for sales in each category, particularly the category that you are in.
For example, 15 or 16 years ago, the average yogurt SKU did $800 to $1,500 a week. Chobani came in and did $6,000 a week and was outselling cigarettes, eggs, and milk at Costco. It changed the category completely. Greek yogurt disrupted the whole yogurt category at Costco. Today, a brand that goes in might have to do $2,000 to $3,000 a week in sales, whether they are on a rotation or they are an everyday item, to be even considered to be on the shelf at Costco. You got to know and understand those things before you make your final decision on whether or not to do the roadshow or not, or try and go after a rotation.
I will add one thing to that too. The young brands also have to make sure that they understand the cash implications of saying yes to a rotation because you are going to produce a lot of inventory. That inventory is going to necessitate you to buy a lot of packaging ahead of time. You are tying up a lot of cash for likely not a lot of margin. That cash is cash that you can’t spend on other elements of your business. You have to be mindful and prepared from a funding perspective as well.
The other issue is that Costco sold CDS, which is the demo company, to Advantage Sales and Marketing. Advantage Sales and Marketing have been very tight with giving credit to younger brands. You might have to pay, let’s say demos cost $32,000. On top of you taking care of your co-packer, or if you have your own plat, your ingredients, suppliers, and then your MasterCard, and all those other costs, you might have to lay out $30,000 to $40,000 before your item hits the shelf just to pay for the demos. If you don’t have that much cash on hand to do that, you are going to find yourself in a rough position. I had that happen with a client that wasn’t able to pay for the demos. The buyer was furious. Now, they can’t get back into Costco because they haven’t paid their demo bill.
From the manufacturer’s side, something that people tend to downplay the significance of is if Costco makes a commitment, that is a commitment only for what they had given you for quantities. For those of you that are not familiar with buy docs, that is the paperwork that you submit to Costco. That is their bible. That is what they rely on for all their data. There is a spot on there that says, “Lead time for reorders.” If Costco wants three truckloads and you sell three truckloads, that is fantastic. That is a success.
Costco wants three truckloads. They come back in the first week and say, “It is doing well. We want to order another two.” You said that your reorder time is four weeks. You load them up on inventory, and you would sell the same amount. That cannot be a success. What companies fall into the trap of doing is buying more packaging than they need for that original commitment.
If it takes you twelve weeks to get additional packaging, that should be your lead time for a reorder. I can’t tell you how many times I have seen companies sit on 100,000 bags or cartons because they anticipated having more rotations. They got a price break because they ordered 100,000 instead of the 36,000 they needed for a rotation. It is a lot more expensive to eat all of that additional film and packaging than it is to take a higher price with a lower commitment for a film to make sure that you are not left with that, trying to liquidate it somewhere. It is hard to liquidate club packaging. That is the reality in the world.
This is my opinion. My advice is to buy what you need and build in a lead time that is appropriate. If the item performs, it will come back. If you tell them they can’t have another truckload in four weeks to keep them stocked, they will plan another rotation. The likelihood of them walking away saying, “They couldn’t perform and get me an additional truck in four weeks,” is low. Your commitment is what you operate off of. It’s not hope.
That’s great advice. What about you, Jeremy?
One of the things, if you’re working with a broker, is you want to make sure that those types of commitments are clear with the buyer, they are in writing, and they have been accepted. If you don’t have that clarification, then you are on the hook. If Costco tells you that they are going to commit to 50,000, and the worst case scenario happens is it is doing $200 a week, and they got a 30 or 40-week supply of product on the shelf, they are going to mark it down. They are going to go through that product because they made the commitment to you.
Costco is generally incredibly honorable about making sure that they take care of the vendor if they made a commitment. I always advise our clients that when we fill out the buy docs, we put language on the buy docs that states 50,000 unit commitment reorder times are subject to having inventory on hand to fill the order. You have covered yourself in the event the buyer doesn’t pay attention or forgets about it. When they see that on the buy docs, there is an ICS, which is an Inventory Control Specialist. All that information on the buy docs gets put into the Costco ordering system so that everybody is aware of what the terms and requirements are.
Another point that I don’t want to belabor too much because this is a long topic is one of the things that you have to work with your broker on is setting the right terms. A lot of times, the brand will work with a buyer, and the buyer will ask for a spoils allowance. What should that spoils allowance be? A brand that has been outselling in the market for a longer period of time is going to know what its spoils are on average. If you don’t have that information, you are stuck guessing on it. It’s always better to go lower than higher because Costco will never give you the money back.
Those are all things you have to take into consideration when you are evaluating, which is why Costco can be a much slower process to get in because you are going to have to spend at least 90 days or more working on answering all of these questions with your broker to make sure that you have completely filled out that buy doc and the information is accurate. On the other hand, once you put all that in writing in there, Costco is going to hold you to do it. If you didn’t do it right, you are going to be stuck with what you put on the buy docs.
I’ve got two questions here. One, I will pitch to Terry for a bit more objectivity and a chance to give Jeremy some crap, which is always fun. The question is, do you need a broker to go into Costco?
As much as I would like to keep all the money for myself, at this stage, if you are a small company, the answer is without a doubt yes. The challenge is picking the right broker.
Can I add to that?
I’m going to surprise you now, Elliot. I don’t think you need a broker. What you need is an expert. What we introduced in January was a new service that allows us to consult with clients on how to get into Costco. We take them through the entire process. We are generally involved for 6 to 10 months on the project. We train their team, get them prepared, and help them through the entire process.
The only thing we don’t do is go to the meetings or call the buyers. That is under full-service brokerage. We have about nine clients that are going directly to Costco, and we just advise them. In the long term, that is going to be the future of the business because there are a lot of ineffective brokers out there. They do things the old way.
Access is an important word. If you have somebody that you can talk to that truly is a Costco expert, and you have the resources to hire somebody that has the time to call on Costco, it can be a cost-saving and a huge value to go that route. To be honest with you, and I have to admit this as a broker, in most cases, Costco would prefer not to deal with a broker. They prefer to deal with the vendor directly because most brokers cannot make certain decisions that Terry can make. If Terry is in a meeting, he can make a decision right on the spot, but a broker has to go back and check with the brand. That is why I said at the beginning of the conversation that a lot is changing at Costco. I do agree, in general, that Costco is such a specialized business that you either need a consultant expert or a broker to go in.
When I say you need the right one, there is some in place that you need an expert, first of all. A lot of companies don’t have. The reason that I would say yes is a lot of companies don’t have the resources to get somebody on a plane to visit every region, and they don’t have the knowledge. It is one thing to be able to make a decision in a meeting with a buyer. It is another thing to be in a position where you are asked to make a decision, and you are not prepared to make it, and you make the wrong one. Sometimes there is a benefit to having a broker walk out of a buyer meeting and let the clock run out a little bit so you can make an informed decision.
It is great to be able to say, “Let’s go the circle the wagons. We got a commitment. Yeah, I’ll do this.” Unless you have been doing business with Costco for a long time and know the business like that, few people are prepared to go into a meeting with a buyer and make split-second decisions on the life and death of their business. Oftentimes, you are not asked to, but I have been in meetings where I have gotten commitments. We walked out with virtually a purchase order in our hands. That can be frightening because you have to make those decisions. You are negotiating in good faith at the table. You go back, and your CFO looks at you and says, “The only way we can make this work is if we fire you.”
One of the old great sales tricks is to make sure you don’t ever show up to a sales meeting with the ultimate decision-maker. You want that plausible deniability. You are like, “I got to check. I got to run to do that.”
As you get bigger, you are able to handle the business, and you are got greater bandwidth, I agree with Jeremy. Costco would like to operate without the ecosystem of brokerage being supported. There are companies that like to pay people and feed them what they kill. Retainers and fees for consultation sometimes are not in the budget for a lot of companies. You get a broker. The only way I’m going to pay you is if you get me business. If we walk out and there is no business, you get on your own plane, get your own car, pay for your own gas, and you go home. I have spent $175 on Southwest, no harm, no foul.
As an earlier-stage brand, having somebody alongside you to help you avoid that mistake is worth its weight in gold. Giovanni with Little Gourmet asked, “Not even specific to Costco, but I’m curious to hear from both of you what you guys think makes a good broker. What would a good broker be doing for us other than opening the opportunity or the strategic door?”
It is a partner that is going to help you navigate the pitfalls of the business and stop you from making a mistake. It is getting meetings. If I want to attend every Costco meeting across the country along with my salesperson, sometimes it doesn’t work. Sometimes the buyer won’t see you because the broker has access but its contacts, and it is helping you navigate the landscape without making many mistakes. There is a certain amount of paperwork that it is nice not to have to pass by somebody else to make sure you are not making those mistakes.
I agree with what Terry said. Every broker gets asked this question by brands. It is the dumbest question to ask because you are never going to get the truth. The question is when you are talking to the broker, they will say, “Do you have good relationships with the buyers?” Every broker is going to say, “Yes, we got great relationships with the buyers. I advise clients, “The proof in the pudding of whether they are successful at Costco or not is what they have currently on the floor at Costco.” That is the only measure of success that matters the most because the buyer may like the broker, but they don’t buy from the broker. There is a big difference between the two.
The other thing is you can’t rely on your best buddy at another brand that is in a completely different category to tell you who the best broker is because that broker may not have experience in your category. You got to get somebody that understands your specific category. Too often, I get calls from brands that they were unsuccessful at Costco because they were using a frozen broker that knew nothing about the chip category. You want to have somebody who is well-balanced.
Another important point is we do a lot of rehearsing with our clients before we go to the meeting. We don’t want them to ever ask a question they don’t already know the answer to. You are much better off if you don’t know the answer, just not asking the question. You got to get a broker that listens. As with all salespeople, salespeople like to talk and hear themselves talk.
Listening is the key ingredient that you want in a salesperson. Many times in a meeting, there will be a moment where there is this question that is asked, and the buyer pauses and doesn’t say anything. The salesperson or the founder of the company gets uncomfortable in that moment of silence and speaks and saves the buyer from having to even answer the question.
Lastly, you want to make sure the buyer can present your item without a PowerPoint presentation. Too often, if you go into a meeting with a broker, you will see them make a presentation. It is like they are reading Green Eggs and Ham, although that would probably be a better read than most PowerPoints. It is important that they represent your values as well.
I had someone call me. This is a good timing point where they have been with a broker for a while. I said, “You are a terrible fit. I know that broker. They don’t think as you think. They don’t represent your brand the way that you do. They are an old-school broker.” You got to be looking at those things. When you interview a broker, you should have a list of questions. You drill them on and make sure you understand before you start interviewing brokers. What it is that you want to get out of this? How do you want them to represent your brand? That is important. There are questions you can ask that will expose the broker right away as to how they follow up.
From a broker’s perspective, I’m on the inside. I know that, in general, everyone loves new brands. It is like dating if you’re single, which I’m not anymore, in case my wife is tuning in to this. You have to understand that salespeople, in general, get lazy. If they are talking to a buyer, they got some other brand they also represent, and the buyer is interested in getting more SKUs from that brand, they may not do a good job at representing your brand. I’m surprised at how many brands don’t do this. You need to have regular calls, in the worst case scenario, once a month with your broker to review what they are doing. You should get copies of every meeting recap that they go to that you are not at. If they don’t provide them to you, don’t hire them.
That’s great advice from both of you. Also, talk to other brands that are using them, not the ones they tell you to, but the ones that reach out and talk to them. We have time for one last question. It comes from Paul, “In what increments can a brand launch and grow at Costco, city, state, region, or national? In other words, could I launch in Austin and across Texas, Arizona, Oklahoma, and Louisiana?”
Yes. One of the unique things about Costco, as large as a company as they are, their regional offices will allow you to go in and go into one warehouse. You are going to have much higher costs only going to one warehouse, but if all you have is the capacity and the buyer wants to bring it in, they may order 1 or 2 pallets for that building, but sometimes that is more than you will get out of a UNFI order going into a smaller retailer.
They will work with you as you grow. You always want to go into the region where you have the most distribution and brand recognition versus going into a region where no one knows who you are. Our data shows that if you go into a region with distribution versus one without one, you will see a difference in sales of 15% to 30%, depending on how much distribution you have in a particular region before you go into Costco.
We are out of time. We probably need to do a part two on this because there are a lot more questions. I got questions on things like regenerative organic, food tribes, and diversity programs. If you guys are up for it, we will look to find a time to do a part two. Before we sign off, I give you each an opportunity, starting with Terry, to leave your last-moment mic drop-type wisdom and share anything you like to share with the audience.
For Costco, be careful and try to make money. The house always has the odds, even in the best game at 51-49. Costco will allow you to be a partner with them. They are honorable, and it is an exciting business. If you have done business with Costco, one thing about it is it’s packed with adrenaline. Make sure you are ready.
Thank you. Jeremy?
Don’t be afraid to say no to Costco. I don’t mean no that you are not going into Costco, but you don’t have to always agree with what the buyer wants to do. I have had some of our biggest successes by saying, “No, we won’t create that item. It doesn’t make sense.” A lot of times, people are afraid to do that. They will respect you more in the end if you understand your category and your brand than they will if you disagree with everything that they say.
Sometimes a buyer will say, “I want your apricot flavor.” You know it is your twentieth worst-selling flavor on your list. You shouldn’t sell it to them because you are setting yourself up for failure. Remember, saying no at the right time for the right reasons make sense, and never do a deal that doesn’t make sense for your company.
If they want to have a chat with you and learn more about working with you, Jeremy, how best to do that?
Reach me on LinkedIn or go to our website at LaunchPadGroupUSA.com. I’m always around. No matter what questions you have, I will always be direct and honest. You might not like the answer, but I will give you my most honest answer.
I can vouch for Jeremy being honest and direct. It is always what you want to hear, but it is always what you need to hear. Thank you both for doing this. I am serious about scheduling a part two because there are a lot of questions remaining, and the conversation is worth having. If you are game, we will get you back. Thanks, everyone. Have a great day.
14 Feb 2023
“Costco is a channel unto itself like no other,” said Jeremy Smith, a specialist in Costco strategy, during last week’s SFA’s webinar “Succeeding at Costco and the Club Channel.” Smith is the president and founder of LaunchPad, a food brand strategy business, and has worked in strategic sales, branding, and marketing for over 35 years.
Costco has become a popular option for consumers seeking value and carries opportunities for specialty food businesses, but it tends to require more work than other retailers to drive success, Smith said. During the webinar, he provided insight into the steps food businesses need to take to determine if their product is viable for the space, and if so, how to launch a profitable strategy.
“The one retailer that can fundamentally impact the course of your company is Costco, but you also have to decide if Costco is the right fit for you,” Smith said.
Costco’s larger-format pack sizes and lower price points can make it difficult for an emerging brand to find its footing, as many specialty food items cannot be effectively sold in that format at a lower price. Smith explained that when it comes to “value-at-cost,” the brand must sell the items for at least 20 percent cheaper than if they were a distributor.
And once on the shelf, each category has a different weekly sales benchmark to continue working with the club. For example, to become a regular item in the yogurt category, the product must sell at least $1,500 a week per location.
Brands also need to be able to keep up with Costco’s velocity. Smith calls it “moving at the speed of Costco,” which refers both to following up with requests and information in a timely manner, as well as shipping items quickly and efficiently. The product’s supply chain needs to be in order.
Despite the difficulties in working with Costco, the benefits can be transformational. Smith mentioned a “sales halo effect” that occurs with products at Costco stores, wherein, retailers in the club’s area are more likely to want to stock the items as well. This can be helpful when launching specialty food in new markets.
Smith also mentioned how important taste is in Costco’s decision to strike a deal, as well as packaging design. Because Costco locations are warehouses instead of supermarkets and favor larger packaging, brands often must change their packaging strategy. In hotter areas and in states that experience heatwaves, like Texas, clubs often turn off the lights during the day, which poses an even larger problem for brands to communicate their product effectively.
Strong color blocking and visually arresting patterns that stand out on the shelves are good tools to consider when designing the packaging. Smith also advised keeping certifications like USDA Organic and GMO-free on the front, as they carry weight at the club. Its organic business generates $4 billion in sales annually, and is focusing on cleaner labels, banning ingredients like high fructose corn syrup from offerings.
To learn more about how to sell to Costco and other warehouse clubs, watch the webinar on demand in the SFA Learning Center.
Heritage Radio Network Episode 163 Aired: Thursday, July 14th 2022
Listen to the full episode here.
Jeremy Smith is the founder and CEO of LaunchPad, a full-service strategy, branding, and broker group focused on Costco. He has spent over 35 years in strategic sales, branding, and marketing, and has worked with some of the world’s most iconic brands including Apple, Chobani, Krave Jerky, and Bob’s Red Mill. On this episode of ITS, Jeremy breaks down Costco for the emerging brand: When it makes sense, what we need to have nailed down before the launch, what motivates a Costco buyer, and perhaps most importantly, when to decide you’re NOT ready.
Heritage Radio Network the world’s pioneer food radio station.
HRN is home to transformative exchanges about food. Our 35+ member-supported food podcasts empower eaters to cultivate a radically better world.
Listen to the Podcast Here
Dr. James Richardson:
Welcome to episode 59. One of my interview with Jeremy Smith of LaunchPad about the future of brokering in CBG. Welcome, everybody. This month, we have a special treat, which is a two part interview with Jeremy Smith of LaunchPad USA, and if you don’t know who Jeremy is and you haven’t heard of a retailer called Costco, then shame on thee. But Jeremy, thanks for being here.
Thank you. Glad to be here. I’m probably the first guest you’ve ever had that can only talk about one subject really, which is Costco.
Dr. James Richardson:
I’m a fascist host. You pegged me right. I’m one of those guys. Jeremy, let everybody know just briefly who you are and why everybody should have already heard of you, if they haven’t.
Well, they probably shouldn’t have heard of me because the brands are supposed to be the showcase of what we do. It’s not the Jeremy Smith show, it’s the brand show. So we’re about brands, as to where a lot of brokers are about themselves, and so my goal is not to build the best relationship with the buyer because I don’t work for the buyer. The only time … I always tell clients, “It’s the only time I receive money from Costco is the rebate check that I get on my Costco credit card.” But that also means I spent money with them. So I don’t work for Costco, I work for the brand. I think that that’s a big difference between us and why we’ve been so successful. We like working with entrepreneurs and founders like you do. We built a reputation for honesty and integrity, and we don’t bullshit our clients. We’re going to tell them, “This will be hard. Or we think this will be a little bit easier.”
Dr. James Richardson:
I’ve spent two years observing Jeremy. He’s made the cut of high integrity, which is how you get on this show.
Dr. James Richardson:
As you see reflected in all the guests and I don’t have a lot of guests and that actually explains why. Jeremy, I am so excited for you to take my open ended question, the next one, and run with it for my listeners. I trust your version of this story. What the hell went wrong with the broker world in CBG? I’ve never heard of a class of stakeholder more maligned.
Well, I think first of all, there was this myth that the brokers created that they have great relationships with the buyers. Most of the buyers, especially at a retailer like Costco, you’re not going water skiing with these people or taking them to the Super Bowl. What people get confused is, I always reference and now he’s in the news everywhere, Alec Baldwin, because of the sales movie he did years ago where ABC, Always Be Closing, which basically, ABC, Always Be Closing really stands for listen to me, I’m not going to stop talking for 45 minutes. I’m not going to listen to you, the buyer, I’m just going to talk and you’re going to love my presentation and you’re going to buy my product.
First of all, the Costco buyers, that’s who they want to meet. They don’t want to sit with a broker for 45 minutes and listen to the broker talk.
Dr. James Richardson:
Oh my God.
And it’s sort of like imagine if you bought tickets to go see Denzel Washington and he rips out the script and just sits in a chair reading from the script, you’d be more excited by listening to somebody read Green Eggs and Ham.
Dr. James Richardson:
So why are you allowing your broker to do it? And the other issue is no one does any damn rehearsing in the industry. A buyer … Who’s your typical broker? “Bob, we’re all set for the meeting. Meet me 15 minutes outside the Livermore office at Costco in the Bay Area before, and we’ll go over a couple of things there.” That’s the strategy. That’s the rehearsing that goes on. And so what we do that’s different is we talk to the client, and say, “Okay, these are possible subtopics that the buyer will bring up in the meeting. Let’s talk about how you’d respond. I’ll play the buyer. You go ahead. I’ll ask you, “Why is your product so expensive?” And what’s your response going to be?””
So the first time we let the client go through and then we refine it and we say, “Well, if you say that, that’s going to open you up and the buyer’s going to say, “Well, when you get your costing all fixed up, come back and see me in five years.””
Dr. James Richardson:
So we do a lot of rehearsing because we don’t ever want to ask a question in a meeting.
Dr. James Richardson:
Oh, I know.
That we don’t already know the answer to.
Dr. James Richardson:
And then lastly, brokers are so interested in driving and talking in the meeting that what happens is there’s always moments of when a good question gets asked by the broker or the brand and there’s awkward silence, and the client or the broker will then interrupt the buyer and not allow the buyer to respond, and you never get an answer to that question because they’re uncomfortable with silence. We’re very comfortable in that. I’ll sit there for 30 minutes with the buyer to get that answer because we need the answer to that question.
And one time, I got the presentation before the meeting and I said to the VP of sales, I said, “Have you timed yourself doing this presentation?” He said, “No.” I said, “I just went and did this.” I said, “I went through your whole presentation. It’s 36 minutes.” A Costco average meeting is one hour of which the buyers are usually 10 to 20 minutes late for. So he said, “Oh no, don’t worry about it. I’ll breeze through it.” So we go to the meeting, he goes through his presentation. He’s down to the final two pages. And the buyer says, “Time up.” The buyer said, “I got to go. I got another meeting. You just spent 45 minutes reading a PowerPoint presentation to me. I’ll get … That’s the end of the meeting.” I said, “If you can’t say something in 10 pages or less …”
Dr. James Richardson:
Oh my God.
“You shouldn’t be at a meeting. You don’t know your brand.” And I said, “And I know that’s not true about you.” No one can tell the story of the brand better, hopefully, better than the founder of the company. It’s an important relationship that needs to be established at the beginning, and if you have a broker that says, “We don’t allow clients to come to the meetings.” That’s your first step that it’s time to hang up the phone and move on.
Dr. James Richardson:
So one of the things that I’m very confused about, that I think confuses my listeners too, I would imagine, is that if the ideal situation is that you are learning how to be a very good salesperson for your own brand, right? So you’re opening up the meetings more or less yourself as the founder, and that’s what I preach because if they suck at that, I mean, there’s a real problem. And I do meet people who don’t work on those skills at all, and they instead spend all this time trying to find the perfect broker, master broker, national broker, whatever, that’ll set up essentially an outsourced sales team.
Dr. James Richardson:
And I’m confused as to what the hell the value would be of having a bunch of outsourced people essentially work for you part time, when shouldn’t you be building that capability internally? And if so, what is a brokerage doing if you have a good sales team? That’s the question that confuses me.
Well, there’s a simple answer to this. When you’re starting off and your resources are tight, a broker can be a very good option for you in the beginning, but most companies transition when the business builds. So you’re talking about a company that’s usually under $5 million in sales. So their resources are stretched, you can’t build … Let’s say they’re going to pay you 5% commission. You can’t build the sales team for 5% of costs.
Dr. James Richardson:
In that situation, finding the right broker can be a huge asset for the brand to start with knowing that plan B is to transition at some point to you handling the business yourself, and also, the broker may not be the best firm to teach you how to sell because [inaudible 00:08:03] about it is some of them have no clue that they’re bad at what they’re doing. You really have to be able to figure that out.
But one of the other problems and this falls on the brand side is that too often brands call their buddy at another company who’s already successful. And says, “Well, you’ve had a lot of success at Costco. Who did you use?” The first problem with that, your buddy is … Let’s say he’s got a frozen food product and you’re in snacks, that broker may know nothing about the snack category.
Dr. James Richardson:
But you just assume because you trust Joe and Joe is a great guy and Joe tells you how great they are, but if they don’t know anything about the snack category, then why are you using a frozen foods brand broker to try and take you into the snack department? You shouldn’t be. That’s sometimes the challenge that comes up.
There’s another issue too, and that’s how brands go about selecting brokers because the first question they always ask is, “Well, what are your relationships like with the buyers?” Yeah, you think they’re going to say to you, that they’re going to tell you the truth that Sandy, they have no relationship with, and Dave just loves them, but we can’t get anything in with Sandy. They’re going to tell you the same … That question can get asked a thousand times and the answer is always the same, “We’ve got great relationships throughout Costco. The buyers switch all the time and so we know everybody at Costco. That’s not the problem for us, even though I’ve never represented a snack brand in the history of the company, we know the category.”
Dr. James Richardson:
Stay tuned on December 15th, the second part of my rousing interview with Jeremy Smith of LaunchPad will go live. So subscribe to Startup Confidential on your favorite podcast platform. Be safe out there.
Listen to the interview here.
Presenting one face, and the truth of the internal brand are a big part of today’s discussion. Some of the highlights include where Dave brings up, “With Costco, obviously, very limited selection compared to a grocery store which will have tens of thousands of items in it. It’s a direct ship model, there’s no distributors and they have a very small sort of 10% to 14% margin, very straightforward with vendors. So it’s a very different model. And it seems like their mantra has always been.”
Dave’s guest, Jeremy Smith, CEO of Launchpad gets right to it. “I think you ask a few vendors and no, they’ll debate you on how straightforward they really are. They like to think they are, but it’s like I always say, Costco will lay out to a broker or to a brand, all the rules, because they have all these rules you have to read. And then you go in and see the Kirkland Signature items which violate 70% of the rules. So just because it’s something as simple as a MasterCard, which is supposed to have at least an inch and a half lip on it, that’s supposed to be a strict policy and certain buyers really enforced it. But on the KS items, it’s all over the place.”
Tesla vs Porche, how is their creative process different? And what does that have to do with focus groups and getting a brand into COSTCO?
In this episode, Jeremy Smith tells us about his incredible journey from briefly working with Steve Jobs in the 80s to helping brands get into COSTCO today.
Learn from a creative professional who worked on some of the most iconic brands within the past 30 years!
Who is Jeremy Smith?
After more than 35 years in strategic sales, branding and marketing, Jeremy Smith’s senior management and graphic arts resume is a salute to the country’s most iconic brands.
Think Apple, Chobani, Krave Jerky, Bob’s Red Mill and popchips.
Prior to Launchpad, as co-founder of Level One, his relationships with buyers, marketers, strategists, venture capital firms and designers, presents enviable connections in the food industry.
Jeremy was named to Forbes and Circle Up’s 2017 Top Catalysts Dealmakers and Influencers in the Consumer Industry.
Watch the Podcast Here.
#062 Jeremy Smith, President and CEO at Launchpad advised… “You have to establish your culture day one and decide what it’s going to be, no matter what happens at the company and no matter how high the growth is.”
Jeremy also advised leaders to consider “You have to build momentum. Momentum is the hardest thing to keep going.”
Feel free to reach out to Jeremy at his contact up above, or connect on his website at www.launchpadgroupusa.com
I highly suggest you watch this entire exchange between Jeremy and ⭐️ Todd Westra 📈
Are you curious as to what it takes to launch a brand in Costco? Hear CEO Jeremy Smith of Launchpad and Drew Aversa discuss what it takes to launch a brand. You’ll learn what sets successful entrepreneurs apart, the importance of storytelling, and critical insight from someone who has launched numerous brands in the food and beverage industry.
Listen to the broadcast here.
Read on Linkedin
I’ve been distancing at my apartment in New York City, mainly ordering food from online restaurant distributors and different farm boxes until my neighborhood’s CSA starts in a few weeks, but if I had ventured out to where I grew up in suburban New Jersey, a classic off-highway Costco next to a HomeGoods and a Target would have probably been my first stop to stock up. I’ve been a fan ever since I was a kid let loose to search out all the samples, and I still have a guilty obsession with its pizza.
But it looks like many families have turned elsewhere. Monthly sales rose 12% in February as stockpiling started at the chain’s warehouses, but as it picked up at grocers like Kroger and Walmart into March, Costco reduced store hours, limited traffic coming in and also capped purchases of some nonessential items. Instacart orders picked up, but March sales were up a comparatively lower 9.6%.
The bigger shocker came earlier this month, when the publicly traded chain reported earnings, and disclosed that April was its first monthly sales drop since 2009. Most of the hit came from low gas prices, and without that, it accounts for a drop of just 0.5% for the past 12 months all together. But Placer.ai data shows foot traffic has been all over the place, and it has made me rethink a lot.
Maybe it was those early reports of fights breaking out. As any true Costco member knows, half the fun of a normal weekend visit is the long and often tense lines, and how taking a break from idling with the cart can turn into wandering through aisles and finding surprises like a value pack of mechanical toothbrush head replacements. But like the samples and the pizza, few of the joys of Costco seem to have a place in a coronavirus world.
Costco has proven itself to be a game-changing channel for hot brands like Health-Ade and Perfect Bar over the years, so where does that all stand now? I asked Jeremy Smith, the president at LaunchPad, who specializes in helping brands get distribution at Costco. “There’s no way to get into Costco right now at this point,” Smith told me. “But by mid-2021 we should be back to reestablishing the emerging brands. Consumers just don’t walk away.”
Pointing to the mortgage crisis and recession, when Costco outperformed most retailers, Smith says he is optimistic sales will improve at the chain long-term: “It’s a choppy environment. As long as people are not confident that they can walk into any retailer and not worry about infection, you’re going to have sales to the negative side, but at Costco the volume is so high that there’s potential even with fewer members walking into the buildings.”
Until next week! In the meantime, I’d love to hear more about new kinds of restaurant delivery models, what it’s like to develop a new food or drink right now, and quarantine-approved Memorial Day recipes. And, by the way, I’m now doing a weekly Live show on the Forbes Instagram account. Tune in on Wednesdays.
— Chloe Sorvino, Staff Writer, Forbes
Youtube = https://youtu.be/8isVEfs7MvI
Listen to the Podcast Here
Jeremy Smith, founder of LaunchPad Group USA has impacted iconic brands such as Apple, Chobani, Bob’s Red Mills, Urban Remedy and Kumana. This episode has prime examples of how Jeremy has worked with these company’s and how these companies went to the next level.
A lot of great takeaways for food entrepreneurs and marketers including how to recognize superflourous trends versus trends that stick, with also amazing advice on how to make your brand everlasting. You’ll get so many great examples from iconic brands in this episode that will blow you away.
Jeremy is not shy to say what’s on his mind, but he backs it up with some pretty compelling feats. If you’re a starting brand or even an experienced product developer, you’ll learn something from this episode that might help you on your next project.
I’m happy to introduce our newest sponsor: Salt of the Earth and their new ingredient, Mediterranean Umami, an all-natural and clean-label flavor enhancer and sodium reduction ingredient that works amazingly on meats, veggie-meats, soups and sauces and ready-meals. My friend, David gave me a bottle and I use it on my pasta sauces, or rice porridge to give it the satisfying umami depth I crave. Find the 2017 IFT Innovation Award Winner at IFT19 at booth number 2112 where they will be showcasing fresh food prepared with Mediterranean Umami. If you’re interested now, feel free to email them at firstname.lastname@example.org
Food Startups Podcast
What do you do for a living?: We turn an entrepreneur’s visions into reality.
How did you start launchpad?: I started in the brokerage business. I used to work with Steve Jobs in designing projects with him.
Level 1 Marketing
Food Brokers: Either strategic people or powerpoint pushers. A Brokerage’s job is supposed to be to set up a movement
Eric Ree at Market Brand and DAB
Steve Jobs: He looked at every experience and improved on it
How do you get people to take you seriously?: You have to develop a sense of fearlessness (it took me 30 years). It’s a two-way street though. Companies must also accept negative feedback well
Paul Clement at Urban Remedy
Ultra Fresh – 3 to 5 day shelf-life
How do you convince grocery stores to take a risk on you?: We would find a region that has a heavy concentration of buyers. You have to convince them that you have to be crazy enough to believe in them. What helps is to convince the grocer that people are not going to X store because they re buying the product from Y store.
Some groceries have different ways of buying
Do you have any advice on starting a food business?: Lots of people are going to tell you no. But you have to believe more than anyone.
Ray Kroc: His determination outweighed the doubt from everyone.
Great ideas fail, bad ideas succeed and visa versa
LinkedIn: Jeremy Smith
NOSH Live Winter 2018 Livestream Studio: Jeremy Smith, Founder, Launchpad
Click here to view
ISSAQUAH, Wash. — Costco Wholesale Corp.’s chocolate-dipped, slightly salty Kirkland Signature Nut Bars became a hit at its stores earlier this year.
Unfortunately for Kind LLC, that meant its own best-selling, chocolate-dipped, slightly salty Kind Bars now faced cheaper competition on Costco’s shelves.
Kirkland Signature, Costco’s store brand, is challenging manufacturers hoping to earn or retain a coveted spot at the warehouse retailer. Since 1995, Costco has used its Kirkland products to attract shoppers, building a reputation for quality and low prices on milk, toilet paper, men’s shirts and golf balls bearing the unassuming red logo. About a quarter of Costco’s $118.7 billion in annual sales come from Kirkland Signature products, and the percentage is growing, company executives say.
LaunchPad Inc. founder Jeremy Smith, who works with food brands seeking Costco shelf space, tells clients: “Assume a ‘KS’ version of your product will come into the market.” When that happens, he said, savvy manufacturers offer Costco new versions of their product, tweak packaging to highlight what’s better about their brand or spend more on marketing — all costs Costco doesn’t incur with Kirkland.
At Costco, negotiating for a spot in stores is a complex dance. Brands fight for space at the retailer’s cavernous warehouses, which on average carry only 3,800 products. The typical supercenter sells over 100,000. Adding to the pressure, Costco often introduces a new Kirkland product when its buyers or executives believe a brand isn’t selling at the lowest possible price.
Today, Costco’s nut aisle is almost entirely made up of Kirkland Signature products, including single-serving packages sold in boxes of 30, bags of almonds and nut clusters. Over a decade ago, what was formerly called Kraft Foods lost spots for its Back to Nature fruit-and-nut mix single-serving packages and several varieties of Planters nuts, said a person familiar with the change.
Leading up to the Kirkland introductions, Kraft raised the price on several nut products without showing the direct justification Costco demands, like an increase in nut prices, and declined Costco’s offer to make Kirkland products, the person said. Since then only a handful of Planters products have been sold at Costco, currently two varieties in some stores and on Costco.com. Because of Costco’s size, the retailer can sometimes buy commodities like nuts at lower prices than consumer-goods companies.
A spokesman for Kraft Heinz Co. declined to comment.
The pressure manufactures face from private brands is set to increase.
Building successful store brands is a priority at Wal-Mart Stores Inc. and Amazon.com Inc. as they battle to boost margins and attract shoppers. After Amazon acquired Whole Foods, it quickly added the grocer’s store brand, 365, to its online food offerings. Wal-Mart and its warehouse chain, Sam’s Club, are reworking and adding to their store brands.
Though Costco’s stock price has suffered amid investor fears that its e-commerce operations aren’t ready to go head-to-head with Amazon, the retailer has kept sales growing, in part by using Kirkland to pressure manufacturers to lower prices and bring products to shelves that can’t be purchased elsewhere.
“If you have something unique, it’s un-Amazonable,” said Simeon Gutman, a retail analyst at Morgan Stanley.
Still, Costco doesn’t aim to become a store that only sells Kirkland products, said Costco finance chief Richard Galanti. Shoppers expect to find brands they know at Costco, and Kirkland looks like a better value next to a higher priced branded version, he said. Often Costco collaborates with brands on products, like its Starbucks-roasted Kirkland coffee beans.
If a Kirkland product doesn’t sell well, it doesn’t stay on shelves, Mr. Galanti said. “We try to be agnostic on it. We try it like any other brand.” In the past, Costco has pulled the plug on store-brand cosmetics, soda and toothpaste.
Some ideas never even hit the aisles, like Kirkland women’s jeans. “Never say never on anything,” said Mr. Galanti, but “the feeling was it wouldn’t work.”
When considering a new store-brand offering, Costco looks for products that are top sellers and can be sold for at least 20% less than branded versions without eroding profit or quality. Kirkland gives Costco “leverage over brand manufacturers” and a product the “competition can’t get,” said Mr. Galanti. Costco is generally careful to make its products slightly different than branded versions.
Buyers at Costco, who spend years at the company before getting the job, “play fair ball, but hard ball” with suppliers, said a food-company executive who has worked to get goods on Costco’s shelves. Before developing a Kirkland product, Costco usually gives a brand-name supplier the chance to make the Kirkland version, too, say company executives.
For years Costco asked Procter & Gamble Co. and Kimberly-Clark Corp., makers of Pampers and Huggies, respectively, to develop a Kirkland premium diaper, said Mr. Galanti. Kimberly-Clark agreed, he said. Costco started selling Kirkland diapers in 2005 and now Huggies are the only branded version sold on Costco shelves.
“We have been pretty adamant across our lines that we don’t manufacture private labels,” said a spokesman for P&G. Kimberly-Clark declined to comment.
Brands often find ways to coexist with Kirkland. About three years ago, Costco buyers calculated that a Kirkland bar similar to a Kind Bar would be 30% cheaper, mostly by cutting marketing costs, said Tess Wilkins, a general merchandise manager at Costco.
Kind Bars sold for about $18 for a pack of 18. “It was a very, very good item for us, and to walk away from those sales, you really have to think hard,” she said.
When almond prices dropped in 2016, Costco decided to proceed, Ms. Wilkins said. Over about five months, Costco developed the Kirkland Signature Nut Bars, made by Leclerc Foods USA, which is owned by Leclerc Group, a Canadian manufacturer, and now sells a 30-pack for $17 in stores.
Kind Bars are still carried at Costco, though mostly new varieties, including fruit bars, mini nut bars and a peanut-free bar. “We look forward to continuing to grow with them,” a Kind spokeswoman said.
Write to Sarah Nassauer at email@example.com
Listen Here for the full Podcast.
Jeremy Smith is back. If you haven’t heard the first interview, listen here.
There is trouble brewing in the food broker space. Whole Foods sales are down. The market has changed dramatically.
Based on listener response to the first episode and Jeremy’s intuition, we continued the conversation on Costco, brokers, and how to adapt to the evolving food space:
This week’s guest: Jeremy Smith from Launchpad. Once a week we broadcast open office hours to address questions that you have regarding cannabis startups. Every week, we gather questions from the community here on Facebook, and via Twitter or Instagram @gtwyinc. Just use the hashtag #GatewayOH and we’ll give you a shout-out if we select your question.
See here on Facebook
Written by Matt Aaron / April 13th, 2017
Jeremy Smith is fed up with the food brokerage industry. There are a shortage of great food brokers. And grocery buyers have noticed. That’s why he is back in the game.
He previously sold his food brokerage, Level One, and is back with an innovative Food Brokerage and Consultancy: LaunchPad.
Over his career in food, design and advertising, Jeremy has worked with iconic brands.
Think Chobani, Apple, 5-Hour Energy, popchips, EVOL Foods, Promax, Pure Foods, Krave Jerky and Bob’s Red Mill.
His relationships with buyers and marketers, strategists and designers presents enviable connections in the food industry. Jeremy sheds all kind of golden advice:
LaunchPad Lifts Off to Help Emerging Food Brands Win at Retail
SAN RAMON, Calif., January 19, 2017
Brand strategy and representation firm set to fuel sales and distribution for tomorrow’s leading food and beverage brands. Just in time for the 2017 Winter Fancy Food Show, brand consulting firm and Costco Broker LaunchPad is opening its doors to food and beverage companies looking to build their brands, grow sales nationwide, and grab the attention of consumers and retailers.
LaunchPad is a new full-service business representation agency focused on market entry and long-term success for emerging food brands. Specializing in delivering strong sales performance at Club Retailers, LaunchPad offers brand strategy, package design and logistics expertise for tomorrow’s leading food brands.
LaunchPad founder and chief executive officer Jeremy Smith brings strong industry experience to his latest venture. As co-founder and chief operating officer at Level One Marketing, Smith nurtured sales and distribution growth for established brands like Bob’s Red Mill and early-stage challengers like Chobani Greek Yogurt, EVOL Foods, Promax Protein Bars and Hope Hummus. He is also currently an advisor to the investment firm VO2 Partners, which specializes in companies in the active & healthy living sector.
LaunchPad has partnered with MarketBrand, an award-winning Creative Strategy and Design firm led, for package design consulting. MarketBrand principals Eric and Deb Read’s decades of food industry experience include developing market entry strategies and impactful packaging for upstart brands like Red’s Burritos, Pure Foods, Promax, Padma’s Easy Exotic, Azuma Foods, Snack to Basics and organicgirl.
“There can’t be progress without questioning the ways things are done, which is why LaunchPad will be like nothing else in the food industry – an anti-agency, a rebel with a cause,” said Smith. ”Our deep business strategy mindset, vision and passion make us the perfect partner for entrepreneurs who approach business with the disruptive mindset of a technology startup.”
Smith continued: “The rise of shrewd retail buyers and savvy consumers means that the old rules of brand building no longer apply. Sadly, the traditional brokerage networks have not grown with changes in the industry and still offer the same old plug-and-play solutions. Their clients are missing out on a big opportunity.
“New businesses that can engineer the right combination of product and execution will have as much clout with retailers as the big CPG brands. The future of the food industry belongs to the dreamers, doers, troublemakers, disruptors and mavericks who are willing to break industry norms to make things happen. LaunchPad will help them think differently, win at retail, and attain sustainable success.”
LaunchPad is available to meet at the upcoming 2017 Winter Fancy Food Show in San Francisco, January 22-25. Please call (925) 329-6425 x100 or email mailto:firstname.lastname@example.org for an appointment or more information.
LaunchPad is the food and beverage industry’s only full service business strategy representation and branding agency focused on market entry and long-term success for emerging food brands. We are experts on the retail environment, packaging, manufacturing and distribution, with a highly specialized focus on the Club Market. We collaborate with dreamers, troublemakers, disruptors and mavericks to break the rules and accomplish the impossible. We promise to guide you, inspire you and never BS you.
LaunchPad® and the LaunchPad logo® are among the trademarks of LaunchPad Group USA LLC. Other trademarks belong to their respective owners. LaunchPad reserves the right to alter product and services offerings, and specifications and pricing at any time without notice, and is not responsible for errors that may appear in this document. ©2017 LaunchPad Group USA LLC. All rights reserved.
Press Contact: Shawn Roberts
On first glance, club retailers might not look like a good sales environment for younger food and beverage brands.
You may have an image of remote cinderblock warehouses, pallets stacked high with mainstream brands, or buyers that don’t want to work with smaller brands.
But take a closer look: and you’ll see enormous potential. Club members’ have an extremely high average household income and are almost always families buying in bulk.