How Costco invented Kirkland Signature

On Feb 5, 2022

It’s also shockingly successful.

Kirkland raked in $58 billion in sales during Costco’s latest fiscal year, making up around a quarter of the company’s total revenue. Kirkland is America’s biggest consumer packaged goods’ brand measured by sales. It’s larger than Hershey (HSY), Campbell Soup (CPB) or Kellogg (K).

But it wasn’t always this way. It took Costco a couple decades to get its Kirkland strategy right.

If you shopped at Costco in the United States three decades ago, you’d find about 30 different Costco private-label brands alongside the big-name food and household staples’ lines.

There was Simply Soda. Chelsea toilet paper. Ballantrae wine. Clout detergent. Nutra Nuggets dog food. These brands were sold only at Costco, which was called PriceCostco at the time after Price Club and Costco merged in 1993 (Costco dropped ‘Price’ from its name four years later).

But Jim Sinegal, Costco’s co-founder and CEO at the time, decided these brand names were forgettable. He sensed a major opportunity to overhaul the company’s private-label strategy.

Sinegal was inspired by a 1991 article in Forbes about rising profit margins for leading consumer goods’ companies at the time like General Foods, H.J. Heinz and Nabisco and the emerging growth of private-label brands. Consumers are “starting to switch to house brands…The trend so far is only a trickle but it shows signs of growing fairly rapidly,” the article said. Sinegal underlined key passages from the article and sent it around to Costco’s top merchants.

Costco at the time was also expanding internationally, including in the United Kingdom and Canada, where stores’ private-label brands were better quality and more popular with shoppers than in the United States. Most US chains’ private brands had been boring, knockoff brands with white labels.

“We found that there was a resurgence of private-label product, and that was driven an awful lot by the fact that the prices of brand-name products were growing so rapidly,” Sinegal said at a talk in 2019 at Georgetown University. Rising prices for big-name brands “created an umbrella” for Costco to develop its own brands at 15% to 20% below branded alternatives, he said.

Sinegal told Costco’s merchants that he wanted the quality of Costco’s private labels to replicate those found overseas. And he had an unusual request — one name for all of them.

“The conventional wisdom said that you had to have a different name for every class of product that you had — a la Sears Roebuck with the Kenmore appliances and the DieHard batteries and the Craftsman tools,” Sinegal said in 2019. “We looked at it and we said, you know, we’re in so many countries and we have such a wide array of products we’ll have a room full of attorneys that are doing nothing but trying to clear these names.”

Sinegal asked staff for suggestions for a name and someone floated Kirkland Signature, a spin on the location of the company’s Washington State headquarters, and came to executives with a…