Fish Tale To understand Costco, look inside a can of its premium tuna
(MONEY Magazine) – To grasp why Costco is beloved by both consumers and longtime stockholders, it helps to know a thing or two about tuna. Costco shoppers have three choices: chunk light (offered in an industrial-size can) and two varieties of higher-end solid white albacore in conventional cans.
Look a little closer at the solid white albacore. One is "superior quality" tuna manufactured by Bumble Bee but labeled as a Kirkland product. The other is called "premium" Bumble Bee. A few years ago, says Tim Rose, who runs the merchandiser's foods division, Costco decided that the canned tuna on the market had declined in quality from 10 years before. So Costco set out to create tuna "like it used to be"--more substantial, with fewer floating flakes. Eventually, it struck a deal with Bumble Bee and spent a year overseeing tests in a Puerto Rico plant. The new tuna, sold under the Kirkland name, hit stores in April 2002; Costco will sell $30 million worth this year.
What is striking is that the Kirkland tuna costs more (99¢ a can) than the Bumble Bee (90¢ a can). So does that work out in favor of Costco, Bumble Bee or the customer? Arguably, everyone wins. If you buy the more expensive brand (Kirkland, made by Bumble Bee), you get high-quality tuna at a very good price; if you buy the leading brand (premium Bumble Bee), you get good quality at an even better price.
Of course, you might be tempted to buy the Kirkland because it seems cheaper. Why? Because Costco has decided to package the Kirkland in an eight-pack. They've decided to package the Bumble Bee in a 10-pack.
All in all, pretty wily. And while executives at Costco are apt to point to their "simple" approach to business, this is anything but. --J.G.