Costco, Target, and Trader Joe's all use the same secret weapon for keeping prices so low

  • Costco,Target, and Trader Joe’s are loved by shoppers for their high-quality, inexpensive products.
  • To keep prices so low, these retailers sell private-label brands that help the company cut costs and pass along the savings to shoppers.
  • Private-label brands also help retailers win over younger shoppers who are more cost-conscious, according to The Wall Street Journal. Here’s how brands make the most out of private labels.

Costco,Target, and Trader Joe’s are loved by shoppers for their high-quality, inexpensive products.

But the products may not be from the most familiar brands – Costco, Target, and Trader Joe’s all have labels manufactured exclusively for them. These private-label brands help stores boost profit margins while still offering customers affordable prices. They can also help drive traffic to stores and tend to lead to customers buying more because they are so cheap.

Retailers are now “more willing to invest in ‘store brands'” because the stigma of “generic” goods has lifted, Barclays analysts wrote in a note last year.

Costco’s well-known Kirkland Signature brand pops up everywhere in the store, from snacks to shirts to paper towels and more.

Trader Joe’s also manufactures many of its own products. About 80% of the products Trader Joe’s carries are from its private label, allowing it to buy goods directly from the supplier and cut out intermediaries that can drive up costs in the supply chain.

Target has recently ramped up its private-label game, launching 20 brands in the past few years. Those private labels include Smartly, Heyday, Wild Fable, and Prologue.

Many private-label brands are heavily geared toward millennial and Gen Z shoppers, who generally are less loyal to well-known brands and focus more on cost and whether a product is healthy and good for the environment, David Garfield, the head of the consumer-products practice at the consulting firm AlixPartners, told The Wall Street Journal in October.

This growing apathy toward brands is creating what the Barclays analysts called a “sphere of despair” for food brands like Mondelez and Nestle and consumer conglomerates like Unilever and Procter & Gamble.

Private brands give retailers a better handle on margins and provide a hedge against big competitors like Amazon.

Here’s how stores use private labels to keep costs low and win over shoppers:


Costco is home to one of the best-known private-label products, Kirkland Signature.


Costco created the brand in 1995, and according to The Wall Street Journal, about 25% of Costco’s $US118.7 billion in annual sales comes from Kirkland Signature products.

Source:

Wall Street Journal


Kirkland Signature products can be found all over Costco. The Journal reported that Costco tries to make its products slightly different from the branded versions and often gives brand-name suppliers the chance to make the Kirkland version too.

Source:

Wall Street Journal


Name brands and Kirkland products can coexist in stores, though the Kirkland products are generally less expensive. For example, Kirkland sells a snack very similar to Kind bars for about 60% of the price, but both items are still on shelves.

Business Insider/Jessica Tyler

Source:

Wall Street Journal


Private-label products are almost always less expensive than name brands because the retailer is buying goods directly from the supplier, cutting out the intermediaries that can drive up costs in the supply chain.

Jessica Tyler/Business Insider

Source: Business Insider


In turn, stores can pass along these savings to the shopper.

Jessica Tyler/Business Insider

Source: Business Insider


At Trader Joe’s, nearly 80% of the products sold in stores are from its private label.

Jessica Tyler/Business Insider

Source: Business Insider


To be more competitive with online retailers like Amazon, Target has been rapidly growing the number of privately owned brands it carries.

Business Insider/Jessica Tyler

It has added more than 20 private-label brands to its roster over the past few years, including Heyday, an electronics brand, and Wild Fable and Prologue, apparel brands.

Business Insider/Jessica Tyler

Source: Business Insider


Its most recent addition was Smartly, a basics brand designed to compete with dollar stores and whose products Target said cost about 70% less than those from more traditional brands, according to The Journal.

Target

Source: Wall Street Journal


Target and other retailers often try to appeal to millennials and Gen Z shoppers with private labels because younger shoppers are generally less loyal to well-known brands.

Target

Source: Wall Street Journal


Instead, younger shoppers focus more on cost and whether a product is healthy and good for the environment, David Garfield, the head of the consumer-products practice at the consulting firm AlixPartners, told The Journal in October.

Business Insider/Jessica Tyler

Source: Wall Street Journal


By using private-label products, retailers can cut out middlemen in the supply chain and lower costs, passing along the savings to shoppers.

Business Insider/Jessica Tyler

Sometimes the private-label products are repackaged name-brand products, and other times they’re made for the store, like at Costco.

Business Insider/Jessica Tyler

Low-cost, private-label products help win over younger shoppers and ultimately help stores keep costs low.

Jessica Tyler/Business Insider

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