It's no secret that private
labels have witnessed massive success in recent
years. It's now a $236.3 billion
industry, but one stands out from the rest. Kirkland
Signature is one of the biggest and most popular
store brands, with more than 300 products, from anything
like vodka to laundry detergent, batteries, and
clothing. And its fans are fiercely
loyal. I just got the first-ever
Kirkland Signature driver. Let's unbox it. Kirkland has a cult
following. There's a reason why people
buy the t-shirts with that brand name on it, and shoes
with the name on it. It's a little bit similar
to what you see from shoppers at TJ Maxx that
they talk about 'Oh, I got such a deal'--like this is
Kirkland brand. Though not a perfect
comparison. In 2023, Kirkland Signature
surpassed the combined net

sales of consumer packaged
goods behemoths Kraft Heinz and Kelly Nova. But nearing three decades
old, the seasoned label is facing an old competitor
with a fresh approach. Sam's Club's Member's MarK. Member's Mark is one of our
catalysts for growth. You can now connect the
entire life for our members, so we can feed you, we can
clothe you, we can clean your home, we can style
your home. And not a lot of brands can
actually say that. As a percent of sales,
Member's Mark is as successful as Costco in
terms of overtaking it. Never say never. Who knows? But I think it's going to
take a long time. While private labels have
been around since the 1800s, they've really only entered
the American consciousness over the past couple of
decades. Historically, private label
was always thought of as low-level entry point, cheap in
terms of price point, but

also cheap in terms of
quality. People thought that private
label was clearly, let's say, the ugly cousin of the
real stuff. Those are the
manufacturers, national brands. But the tables have turned. Sales of private labels
increased 34% between 2019 and 2023. Some of the biggest
companies have invested heavily in the category,
like Amazon, with its more than 100 private labels,
plus its Whole Foods 365 brand, or Aldi, Trader
Joe's, and Wegmans. Today, many consumers
consider private labels as good as or better than name
brands. The competitive landscape
has changed. You see a lot of European
brands come into play like an Aldi, Lidl, Trader Joe's,
and their whole value proposition is offering
private label, and so that's changed the perception of
the public. Customers tried these
brands during the pandemic when they couldn't find
their favorite national

brand, and so in some
cases, they discovered they like them more. And then
the third reason is inflation. As people look
to get more for their money, they're trying the cheaper
brand. And usually that's private
label. It's difficult to compare
private labels as a whole. Some are solely focused on
one product or one category, others thread many like
Costco's Kirkland. The company realized early
on it could differentiate its private label. It launched Kirkland
Signature in 1995 with 30 different products. Now there's more than 300. The warehouse typically
carries two versions of each product, one national brand
and one Kirkland product. Giving consumers only two
choices is a good business decision. On top of it, the
shelf space is limited. A typical Costco carries
3800 products, while a supercenter can carry up to
100,000. If you go to a club, you're
going to get a great deal.

You're going to get a high-quality product at a good price because you've already paid your membership, but there's really no expectation of a huge array of different choices. If you think about private label, it's really an exclusive product. It's an exclusive offering that you can't find anywhere else. People can easily cancel their membership, and so the stakes are always high to offer a brand that's above the rest. Today, Kirkland is one of the biggest singular private label brands in the country. While Costco doesn't report the brand's annual sales, the company did confirm that Kirkland sales were about $58 billion in 2023. Discount grocer Aldi, whose entire business model is private labels and is still expanding its footprint in the US, had about $26 billion in sales in 2022. Member's Mark's were between $22 and $25 billion.

in 2023. They've had a head start
because they've had a single brand right for 20 years. But for us, it started with
us making the decision to have a single brand. And now that we've made
that decision, we do have work to do from a marketing
perspective. Sam's Club had more than 20
different private label brands at its peak in 2017. The company switched
strategies by consolidating them all into one: Member's
Mark. Sam's Club CEO told CNBC
that Kirkland was an inspiration to the brand
revamp. We've seen some great
benefits from it. Brand recognition has gone
up, member acceptance has gone up, and the business is
in a much better place going forward. The company has moved
quickly, revitalizing more than 1200 items since 2020,
and as of June 2024, Member's Mark accounts for
30% of Sam's sales and more.

than a third in terms of
units. That's a little higher than
Costco's, though the two clubs have vastly different
amounts of SKUs. One of the reasons why
Costco has been able to get away with having fewer SKUs
is because of the success in the cachet of Kirkland
Signature. Sam's club have tried to
elevate the quality, and again, they're using the
branding across different categories as well,
something that they hadn't done as much of. Part of Costco's cachet,
using national manufacturers to produce many of its
private labels for what it says is the same quality or
better. Costco makes a deal with a
national brand manufacturer. You manufacture our
products, and we will carry your national brand in our
store. It has been widely rumored
that these Kirkland diapers are manufactured by
Kimberly-Clark as price of entry of Huggies into the
Costco stores.

Because Costco has a small assortment and is a huge retailer to be able to sell your Huggies, it's very good for business, especially if your competitor Pampers isn't there. That's intentional. This is also where Sam's and Costco diverge. Sam's declined to name any of its manufacturers, but admitted the vast majority were not big names, rather smaller suppliers that primarily work in the private label space. The company has used that to its advantage. Private labels can adapt and develop quickly, which is key in Members Mark's evolution. It launched a program where members can help co-create products. 50,000 consumers have already opted in-- testing new products, voting on flavors, and providing instant feedback. What we're doing is we're working with our members each and every day to say, what do you want? What are you missing? What flavor profiles, what styles do you want?

And we're finding that that
connection with our members creates this really
positive organic growth in word of mouth for Sam's
Club. Member's Mark is a younger brand, and
so they're acting a little bit more like a startup as
they test these products. If you're working more
closely with shoppers and getting real-time feedback,
you're not going to crank out a bunch of products
that just sit on the shelves. Sam's Club is prioritizing
not only quality as it expands Member's Mark, it's
also adding new categories and other products that it
says separate it from Costco. I think we play in pretty,
pretty similar spaces, but as I think about our
future. Uh, home goods. So indoor furniture and
small appliances, that's an area where we'll go deeper. We'll still continue to
fight food inflation directly. So where our
members tell us they want us to create new products, so
where they want to help to

bring prices down, we'll
continue to do that. By having a wider variety and a
greater assortment, it could make them more of that
lifestyle brand if they truly have the offering in
the kitchen and the living room in the fridge. Items for every part of the
house. But strengthening Member's 
Mark doesn't come without risks. If you do not deliver on the
quality in one category, it may undermine the
confidence that your shopper has in the quality of your
private label. Even Costco faces quality
issues. Consumer reports ranks
many, but not all, Kirkland products higher than
member's mark. And quite a number of cases,
Kirkland is is close to, let's say, the best in
class national brand. But when it comes to things
like paper towels, it's extremely far behind
bounty. It's been around for a while and
it's been successful, and the quality is really good.

Target, Walmart, those guys, their manufacturing is also higher quality. It just hasn't quite gotten to that level of trust from consumers yet. In a lot of cases, everyday consumers know the Kirkland Signature brand more so than they do the member's mark branding right now. The potential is there though. Member's Mark, as we know it, is relatively new. Walmart is a huge company with nearly $650 billion in revenue. With that comes a lot of resources. Sam's club has 69 million members shopping at 600 US locations, compared to Costco's 73 million worldwide. That's why member's mark has been really deliberate in trying to get its own customers to help it develop new products, with the hope that those customers then become kind of product evangelists to their neighbors. In the meantime, expansion is top of mind. Sam's plans to open 30 new warehouses by 2028.

They are opening new doors,
but they're also going to have more product to put on
shelves. And so that makes Member's
Mark critical in attracting new members in those new
markets, because oftentimes when the club channel moves
into a region, it may be the second or third club
player. So they are competing
directly with households that have to decide, I may
already have a Costco membership. Do I want a
Sam's Club one as well? Still, Sam's has ways to go. Costco's domestic revenue
is two times larger than Sam's Clubs. Can they catch up? Maybe one day. But you
know, not not in the next couple of years. We think
that's definitely a longer term potential. Costco has historically had
a higher income customer than Sam's Club. Is that
because they have the Kirkland brand? Is that
because they have a strong following? It's hard to
tease out what came from

what the real test will be
up to the shoppers. And I think that Member's
Mark will have a pretty direct connection to
whether or not people sign up for Sam's Club and renew
their membership.

Kirkland Vs. Member’s Mark: Can Sam’s Club Ever Catch Up To Costco?

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