Why you should buy wine from Costco
Jon Thorsen on why you should buy wine from Costco:
Costco's average margin (per their financial filings) is about 12 percent. Costco has stated that the highest margin they will take on a non-Costco brand is 13 percent and they strive to keep it closer to 10 percent. On private label items (Kirkland Signature) they will go up to 15 percent margin but of course the price is still lower than other brands because they cut out the middleman. It's an amazing business model—their stores average about $160 million each in annual sales. Their total revenue is around $90 billion and they make several billion in net earnings, yet investors complain because they think their margin is too low and they pay their employees too much!
So what does this have to do with buying wine? I believe the 10–13 percent margin is similar for alcohol. No wonder Costco is the largest retailer of wine in the United States. I talked to a local store manager recently and commented on how a local upscale restaurant was advertising a wine for $12 per glass and $46 per bottle. At the time my local Costco was selling this wine for $9.99 a bottle. He stated Costco's markup on that item was 12 percent, which would put their margin at just under 11 percent. This means that unless you're dealing with a special buy/closeout type situation, you really are not going to find wine much cheaper than at Costco.
The other nice thing about Costco is that in my experience their buyers do a fantastic job picking out high-quality products. If they stock it, you can be fairly sure it's good, unlike some of the other big chain stores. Since Costco is the largest retailer of wine in the United States, products tend to turn over quickly so there is quite a variety over time. The downside of this is that a wine you loved may be gone the next week, so if you like it you better buy a bunch.
I wish I could chat with the wine buyer for my local Costco and make some requests. And I'm with the author. We complain about companies like Costco and Amazon.com having margins that are too low, yet perhaps we should more often praise companies that generate so much consumer surplus for the world (as long as they compensate their employees fairly).
It's humorous to see the variation in wine selection from one Costco store to another. I was at a Costco in Novato, up north across the Golden Gate Bridge, helping to pick up supplies for a party, and saw half bottles of 2006 Chateau D'Yquem and a bottle of 2009 Screaming Eagle in their glass-case secured wine display. The Screaming Eagle was selling for $2149.99. You can likely deduce the average income of residents in the area (my local San Francisco Costco doesn't carry such fare, though given real estate prices in the city, perhaps they should).
Another useful tip from the piece:
One other note on Costco is that typically any price that ends in .97 is a markdown. Furthermore, if there is an asterisk on the label that means it is a closeout and is not coming back.