Club stores have built a reputation for introducing have-to-have items to shoppers who never even dreamed they existed.
Now, with inflated gourmet selections and more vast international aisles, mainstream retailers are entering the specialty fray and inciting a new level of innovation in the club channel.
“There is no question that every retailer today, including wholesale club chains, is working harder to find unique and new specialty food items,” said Jon Hauptman, a partner with the Barrington, Ill.-based retail consulting company Willard Bishop. “Traditional supermarkets are doing a much better job of sourcing and demoing unique items as a point of differentiation.”
Although it's been merchandising novel items for nearly a quarter-century, Costco Wholesale Corp. has no problem keeping things fresh, said its president and chief executive officer, Jim Sinegal. Over the years, Costco's seasoned buyers have become adept at sourcing unique products and bridging gaps with conventional shoppers.
For instance, the Issaquah, Wash.-based retailer helped reduce intimidation and confusion in its wine department by putting one of the 15 most educated wine buyers in the world in charge of developing its selection, which comprises 200 stockkeeping units, said Jim Hertel, managing partner at Willard Bishop. Dwarfed by most mainstream retailers' 2,000-SKU arrays, Costco's smaller selection aims to ensure that any bottle a customer chooses will be a great choice.
“We seek items out as part of our buying function, and suppliers bring new things to us every day,” noted Sinegal.
Among the items that have caught Costco's eclectic eye are a 25-year-aged Modena Gold Label Balsamic Vinegar from Modena, Italy, retailing for $99.99, and Plaza De Caviar's Caviars of the World, which includes Farmed Black River Osetra, Farmed Royale Osetra and Farmed Russian Osetra Gold, for $269.99.
“Clearly, our reputation has not been made on selling 12 ounces of bologna,” noted Sinegal. “Customers expect to find more esoteric items with us.”
Shoppers of more mainstream channels have similar expectations as conventional retailers search for unique items with the help of specialty food distributors, said Hauptman. “Specialty items at trade shows are also exploding, particularly when you group in natural, organic, ethnic and gourmet food suppliers,” he said.
Sinegal sees Costco's sampling program as a way to differentiate itself.
Frequent demos of products from its Kirkland Signature private-label line, as well as products made in-house from scratch and served as part of its food service operation, have helped Costco maintain its treasure-hunt atmosphere.
“Demoing products is not the heart of what we do, yet it's something that, if discontinued, would disappoint our members,” said Sinegal. “We make a very unique chocolate cake in our bakery, and when we demo it, we see sales go through the roof.”
Among the other items recently introduced to shoppers' palates are an imported Mexican olive oil and Belgian chocolates.
“These are items the customer isn't used to seeing, so sampling gives them an indication of the taste and quality,” Sinegal said. “Knowing how to get the right products in the right packages has also been part of our success. We're unique in the way we present things.”
Hauptman recalled making a purchase as the result of a sampling made at Costco last year. He was invited to try a sip of a concentrated pomegranate juice, whose attractive vessel resembled a wine bottle.
“She was a very good saleswoman, and after I tasted it, she told me about the product,” he noted. “The idea is to drink just one ounce a day to enjoy all the health benefits of pomegranate. I ended up buying [an $18 bottle of juice], but I never would have if I had just passed it on the shelf.”
Simultaneous Samples
As part of its effort to encourage trial, Costco simultaneously samples between eight and 10 products from about 11 a.m. through to the dinner hour on any given day. On busier shopping days, customers might encounter as many as 10 or 12 such demos. Featured products are changed weekly.
The types of foods being sampled can vary from region to region, with more Italian and kosher delicacies being demoed on the East Coast, for example, than in other regions. Also, some of the bakeries in its East Coast locations are kosher.
“With our pricing, somebody might treat themselves to Belgian chocolates, because it's such a great value with us,” said Sinegal. Although he wouldn't mention brand specifics, Lady Fortunes Belgian Chocolate Dipped Oreos are among the delicacies sold in Costco stores. A tin of 16 retails for $29.99.
Sam's Club, a division of Wal-Mart Stores, takes a similar approach to food and beverage sampling. Its buyers work with vendors to come up with unique items and merchandising programs that add value to the foods and beverages it stocks. The retailer uses its own sales associates as well as outside “talent” to produce a sampling demonstration.
Last winter it staged three promotional events designed to encourage holiday sales of Jim Beam Kentucky Straight Bourbon Whiskey. They were hosted during the winter holiday season in about a dozen stores located within a single geographic region, according to Christine Bridgman, marketing communications analyst for Overland Park, Kan.-based Sunflower Group. The promotional services company stages product samplings and other promotional events.
Because they weren't licensed to do so, demonstrators didn't give customers the opportunity to taste the whiskey, but they did offer them a value-added service to promote trial. Those who purchased a bottle could have their name or the name of a loved one printed on the label free of charge.
Jim Beam provided laptop computers, printers and customized bottle labels for the promotion, while Sam's Club supplied hardware and other materials on the days of the events.
The promotion proved to be “exceptionally successful,” noted Bridgman.
Sunflower Group employees intercepted shoppers in the store aisles and showed them the labels, which read “Jim Beam Kentucky Straight Bourbon Whiskey, Bottled Especially For …,” with space provided for a person's name. If customers decided to buy the whiskey, the demonstrators would use the laptops to print the customer's name or the name of the person who would receive the whiskey as a gift. The demonstrators would then take the labels from the printer and affix them to the bottles, and an incremental sale was born. The promotion focused on the 1.75-liter bottle, which usually retails for $32 but during the promotion sold for $35.
In addition to building a unique in-store display featuring an inflated Jim Beam bottle, Sam's Club and Jim Beam also distributed recipe books that showed customers how to enjoy the bourbon in ways that didn't involve drinking it.
“It was a great gift to bring to a party, so that was a really, really cool event,” said Bridgman.
Being committed to sampling so many different types of products, even some that come from small, emerging venders, gives club stores a competitive advantage vs. conventional supermarkets.
“Gone are the days of handing out a chip and napkin,” Bridgman said. “Marketers have become very savvy with these promotions, and we've seen retailers and manufacturers come up with some pretty creative ideas.”
Hauptman notes that it is often difficult for a niche brand to break into a supermarket product mix, but warehouse clubs often bring in such items for a demonstration to test the waters before they begin to carry it.
“They will give a smaller company a small number of stores in which to demo and sell their products for a short period of time, often during a weekend,” he said. “Then they will track the strength of those sales, in some ways like a live market test of a new product.”
Costco recently used that strategy to introduce dried blueberries to its product mix.
“It started off as a very small item, and we demoed it, and all of a sudden it took off as one of the biggest items in our dried fruit department,” said Sinegal, who would not disclose the brand name. “We find many instances where products take off like that. Sometimes they last a long time, and sometimes they become good for six months or a year and start to fade as something new comes in.”
