Club Channel Rush or Crush: Growing Profitably in the Face of Growth and Inflationary Price Pressures

The Club channel has historically been a critical “Where to Play” channel choice for many brands, but its importance is growing as growth in the channel continues to accelerate behind inflation-driven shifts in shopping behavior. This can create true challenge for brands as Club retailers hold steadfast in their demands for value-based assortment, and many teams are stepping back and seriously re-evaluating if they have the right strategies and tools required to win and to improve profitability. Most have executed or are contemplating further price increases not only to recover inflationary cost increases and to continue investing at competitive levels but to claw back some margin mix hits. However, this can create challenging item reviews as Club retailers intensely scrutinize pricing rationale and assortment to live up to their promise of discounted scaled buying on behalf of their members.

Simpactful has Club channel experts from “both sides of the desk” who have personal experience in growing brands profitably behind the channel’s pricing requirements. Together, we have captured best practices, codified examples, and developed models that can be reapplied for profitable sales growth. “Costco and Sam’s club continues to accelerate after delivering incredible growth in 2021.  Costco’s Q3 2022 sales were up 16.3%, while Sam’s drove more new memberships in their Q2 than any other recent quarter and quarterly comp sales were up 9.5%. Analysts expect continued growth behind same-day delivery efforts, as well as both domestic and international expansion. Our clients are reporting cost increases that, combined with the strong growth of the channel, necessitate price increases. We can help suppliers understand the evaluation process for price increase justification and prepare for their line reviews,” says Todd Ruberg, Simpactful Senior Partner. “We can also share best practices and what Club retailers value and will reward.”

A key practice for profit improvement is ensuring innovation plans consider Club requirements and Member insights upfront, vs. retrofitting a Club pack late in the process.  “So many CPG’s still think of Club as a “alternate channel” and don’t design items to fit the model. However, using member insights, a variant can be designed for the Club member to minimize competition with the brand’s assortment elsewhere in the channel,” says Ruberg.

There can also be significant profit unlocks in the Club supply chain if you know where to look. “A well-designed club item and plan can have significant supply chain savings in packaging, transportation, and storage,” says Simpactful Senior Consultant Tom Garvey. “Meaningfully differentiating a brand’s item for Club can also be a profit unlock” says Garvey.

Growing profitably with the Club channel is now no longer optional for CPG’s and avoiding the potential crush of profit dilution is the challenge. Simpactful has experts who “have been there” and can help you develop the plans to create partnerships that result in profitable growth for Costco and the channel.

Interested in learning more? Simpactful is a CPG & Retail consultancy staffed with experienced Brand and Retail practitioners who work shoulder to shoulder with you to break down complex problems and provide practical solutions that are both simplifying and impactful. Contact us today at contact@simpactful.com or 925-234-6394.