Spirits

Costco's Kirkland Signature alcohol boosting stores’ bottom line in a big way

Reuters

Reuters

Costco shoppers aren't just looking for cheap toilet paper, family-sized toothpaste tubes and larger-than-life snacks-- they apparently love the alcohol, too.

Devotees of the memebers-only warehouse chain have long been aware of the store's private-label booze--Kirkland Signature-- and the sales of alcohol have been booming in the last year, to the tune of $3.8 billion for the company, with wine accounting for almost half of those sales.

The producers that actually make the store's alcohol is a company secret, but, according to Bloomberg, some loyal consumers swear they're the same producers behind top shelf spirits like Grey Goose and Tanqueray, hidden behind Costco packaging.

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According to chief financial officer Richard Galanti, Costco's alcohol category has grown 46 percent in the past five years-- growing much faster than sales of the store's food and home essentials.

In 2003, Costco began selling wine under the name Kirkland Signature, with spirits under the same label following in 2007. Additionally, they also have a line of private-label craft beers.

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“Private label continues to grow as a dominant strategy in retail -- especially when it migrates from being a ‘label’ to more of a ‘brand,’ which Kirkland has done,” David Bassuk, managing director at consulting firm AlixPartners told Bloomberg. “Now it’s a well-known name and gives the consumer a perception of value and a good deal.”

The best part of Costco’s model for alcohol sales is keeping markup percentages low.

The average retail liquor store's markup is 25 to 45 percent on products, but Costco maintains a 10 to 14 percent markup.

Although the company posted earnings of $1.17 a share last quarter, missing analysts’ projections for $1.36, booze sales were a big upside to the shortfall.

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As with all things Costco, buying in bulk is the focus. Of Costco’s 508 locations in the U.S. and Puerto Rico, stores are able to sell beer and wine in over 80 percent of locations.  

The markup may be low, but the quality has been ranked consistently good-- and when members like a product, they keep buying a lot of it.