By Todd Ruberg, Simpactful Senior Partner
Costco has announced that Craig Jelinek, the company’s second CEO after Jim Sinegal, will step down and be replaced by Ron Vachris. He is expected to enable a strong constancy of purpose and methods as Vachris will become the third CEO in the company’s 40-year history. For most, this will not come as a surprise as the succession plan has been well orchestrated and telegraphed with a transition plan that follows the successful playbook that was in place to prepare Jelinek when he took over in 2012.
I’ve worked with Costco directly and indirectly for 17 years. I began as a team leader for their then largest supplier before eventually managing the strategic relationship and all aspects of the business as an SVP of Sales. For the past 8 years, I have worked with dozens of CPG clients in my capacity as a partner at Simpactful and have built our Club channel practice, which includes a former Costco SVP.
A transition is a terrible thing to waste (or risk): New retail execs often scrutinize the end-to-end business to identify opportunities to improve the top and bottom line, as well as ways to improve shopper experience or create competitive advantage. In this instance, Vachris has been the No. 2 executive at Costco since February 2022, and while he is unlikely to touch pricing on the famous rotisserie chicken, we do expect him to double down on key priorities and invest in new areas. Brands can use this window to reinforce and signal their commitment to winning with Costco by focusing on the following areas:
1) Items that drive and reinforce club membership: Like Jelinek, Vachris spent much of his early career in Costco operations. He will continue to place high priority on carefully guarding the total SKU count in the warehouses and maintaining levels somewhere around 3700 items. For CPG brands this means that securing and maintaining distribution will continue to be challenging as the “redline” or the minimum sales level required for an item to remain in distribution, will only get more challenging.
It will be critical to design SKUs with strong “member value.” Costco will continue to evaluate assortment pricing and value relative to competitive retailers. Suppliers should expect a continued focus on quality (ingredients, materials, production quality, etc), and unique features that could be exclusive to Costco’s members.
2) Packaging as a sales driver and cost reducer: At Costco, both the primary and secondary packaging must work hard to attract and convert members in a warehouse environment where there is no other shelf signage. Given the unique supply chain and pallet presentation of merchandise, brands must be well versed in Club channel packaging best practices and execute with excellence. Vachris will likely focus on more sustainable practices, and packaging can be an important driver and enabler.
3) Growing “global:” Costco will continue to expand into white space locations outside of North America and build on membership momentum in Europe, Asia, and Australia. Suppliers that can offer global assortment options and multi-national supply chain capability will be valuable to them.
4) “Digital” ideas: Costco will always place significant priority on the member experience in their warehouse locations, but the retailer has been methodically expanding digital offerings, and continuing to explore ways to improve the membership experience and retention through technology. For example, we expect to see Vachris focus the organization on more testing and exploration of things like retailer media. Suppliers that are willing to partner and test digital initiatives and/or bring forth new digital ideas that can drive membership satisfaction will always be valued.
We expect Costco to continue to succeed, driving more membership all over the world. Winning with Costco and the Costco members requires understanding and executing within their unique model and requirements. Simpactful has now helped dozens of CPGs do just that, with our team of experts from “both sides of the desk.”