Charlie Munger was asked, “If you had to recommend one company other than Berkshire for the next ten or twenty years, which would it be?
Munger replied, “In the U.S., it would be Costco.”
The U.S. Costco (formally known as Costco) entered Shanghai, China, and we saw through the crowds at Costco’s first store in Shanghai that the Costco store literally replicated almost all of the essence of the U.S. store.
The same membership fee system, own products, top quality meat, fruit, dairy and other fresh produce, specializing in large-size, large-packaged daily necessities, so that people can not finish shopping at once and every time a new discovery of product updates ……
What does Costco, the global leader in membership stores, have to learn from us?
-01-
Costco
A speed-competitive business
Who is Costco?
Some people say it is the second largest retail supermarket in the world and the world’s first membership-based warehouse supermarket chain ($299 annual fee).
Costco claims to control the gross profit to 7%, more than 14% gross profit, need to apply to the president, only earn 1~7% gross margin (25~30% for ordinary supermarkets)
It department store goods prices are 30% to 60% below the market price, while the food category is 10% to 20% lower.
Gross profit is about 15% to 25%, but its inventory turnover is 1.5 times higher than Walmart’s.
I would say that Costco is a typical “speed” competitive company.
So what is a speed-competitive business? What can we learn from it?
There is an important indicator of business efficiency, that is, the return on investment (ROI), ROI refers to the value that should be returned through investment, that is, the economic return that a company receives from an investment activity. The formula is as follows.
To get a higher return on investment (make money), companies need to pursue both profitability, should pay more attention to the turnover rate, which can be called the “degree” of earning money and earning “speed”.
A supermarket’s profit margin is limited by the external competitive environment, it cannot exceed the regional average range, but its turnover rate can bring different differences due to its own business philosophy and management model. We call it changing the rate of earning money.
So how to evaluate and improve the speed of supermarket pinch money? It is also to mention its supermarket cycle turn rate. We further translate the cycle turn rate into a daily operating indicator, i.e., output per unit of time, as follows.
Because of the limited shopping space in the store (Costco opening day door limit entry, half-day shutdown), only to play the ultimate unit time output (speed) of its space, in order to improve the turnover rate, which in turn is reflected in the final ROI.
In addition to the operation of the supermarket Costco, today’s outstanding companies are sparing no effort to improve its “speed”, such as.
Zara from the design to the shelves can be as fast as 10 ~ 15 days, traditional enterprises need 6 ~ 9 months, the production cycle of 3 ~ 7 days, traditional enterprises 2 batches per year. Logistics 2 days, traditional enterprises 7~30 days. Inventory turnover of 12 times, 3~4 times for other enterprises and 1 time for domestic enterprises.
Uniqlo’s turnover days are 84 days, Zara is only 1/3 of it; providing high price-to-price ratio goods, making affordable goods feel like luxury goods, its cost performance, technology, design, and fast sales are its core corporate capabilities.
Xibei’s delicious strategy, order with eyes closed, all dishes are delicious, unsatisfied can be returned, order good food 25 minutes on all, overtime discounts, free gifts or free orders.
Foxconn’s 982 (i.e. 98% of mass production orders are shipped within 2 days), designed in one place, manufactured in three places, and delivered globally.
The inventory turnover days of 7-11 retail stores is 9 days, compared to an average of 29 days for domestic convenience stores; Grandma’s turns over the tables 6 to 8 times a day.
Back to the opening of the supermarket Costco, how to play its maximum space unit time output (speed)?
To answer this question, we first analyze what factors are affecting the speed of shopping in the supermarket shopping process.
Is the product what I need?
Is the price of the product expensive?
What if I am not satisfied with my purchase?
If we can solve the above three problems at the same time, we can maximize the rate of customers entering the store, increase the shopping volume and shorten the shopping time.
Just like the concept of Xibei oat village, the largest Chinese food enterprise, “order with eyes closed, everything is delicious; unsatisfactory dishes can be returned, 25 minutes to serve a full table of dishes”, when customers have dining needs, the first time they will think of Xibei.
-02-
How does Costco solve the problem?
How does Costco solve the problem of whether the goods are what I need?
Costco only serves middle-class consumers and small and medium-sized corporate customers over $80,000 to $100,000, and adopts a membership system that only serves this specific group with a full range of merchandise and charges a membership fee (a minimum of $55 and a maximum of $110 per year).
By charging a membership fee, Costco further segregated the non-targeted customer base to maximize its ability to understand and identify the needs of this group and to better focus and concentrate its services. At the same time, and make every effort to avoid or reduce inefficient demand, reducing its operational efficiency.
Using SKU data to analyze and verify, Costco is different from Walmart, Costco provides up to 1~3 SKUs for the same category of products to facilitate the fastest selection, which is only a fraction of Walmart.
Costco only provides about 4,000 SKUs, including about 3,000 necessities and about 1,000 impulse consumer goods, each category has been carefully selected by Costco in the world, only to provide consumers with the best of the 1 ~ 3 “pop” goods. The creation of such pop-ups has further boosted Costco’s single SKU stocking volume, thereby gaining bargaining power.
In Costco, members walk to their own shopping list of goods, simply do not have to think, research what brand to use, not to mention the price comparison, no selection, no hesitation, just according to their shopping list from the shelves directly take it.
How to solve the problem of expensive products at Costco?
The main cost of supermarket goods are divided into procurement costs and operating expenses, in Costco gross profit control to 7%, never more than 14% gross profit, when more than the application to the president, it only earns 1-7% gross margin (ordinary supermarket is 25-30%), in such a low gross profit margin, competitors are difficult to maintain survival.
Another Costco strongly promote its own brand, Costco’s sales, 25% from the private brand, Costco’s own brand Kirkland Signature is the number one selling health brands in the United States.
Private label is an important step for Costco to further benefit its members with lower prices and consolidate its “speed” business model.
To save on operating costs, Costco generally buys or leases very cheap land near suburban highways; uses very simple store layouts, practical and simple decorative designs, and warehouse-style displays; streamlines its staff by eliminating in-store shoppers and using higher-than-industry salaries to motivate employees to work efficiently while reducing their turnover rate; and does little marketing advertising.
Costco hardly does marketing advertising, relying only on people to people and word of mouth; relying on high turnover to dilute storage costs, 30% of goods sent directly to the stores by manufacturers, 70% of goods sent to the central warehouse by manufacturers, goods as far as possible no unpacking. These measures make Costco operating expense ratio, is actually half of Walmart!
What if I’m not satisfied after buying at Costco?
In Costco also provides worry-free shopping service. Customers buy unsatisfactory goods, or feel that the price is unreasonable, you can apply for an unconditional membership card and get a full refund at any time without stating any reason.
When you enter Costco, whether you want it in advance or on a whim, you just need to close your eyes and take it, it is a “faith”. Customers no longer have brand loyalty to specific products, but to Costco to build trust and loyalty.
When a company is clearly positioned, and from the degree of competition to make money on the speed of money, as if into the fast lane, will soon pull away from competitors absolute distance. Not only to the ultimate return on investment, can be higher than the competition, but also at the same time in the tree high competitive barriers, and form a virtuous circle, as follows.
Like Costco is not only its goods at a good price, but also because of the reliance on speed to earn money business, has a higher social responsibility and entrepreneurship.
Honda has a three likes: “let the people who make cars like, let the people who sell cars like, let the people who use cars like” consistent, Costco also did the same, the supply chain a large number of stable procurement, Costco employees high salary, low turnover rate, paid members of the flock, is proving it all.
-03-
What is Costco’s excellence?
A related article in The Future of Consumption points out that Costco, as a brick-and-mortar store, has long since achieved several indicators of excellence in brick-and-mortar retail operations at the end of last year.
First, the volume of incoming customers is stable and huge. In addition to the 200,000 members who opened cards in the month of opening, Costco has maintained a very high level of customers.
Secondly, customer reputation is stable and better. Now familiar with Costco shopping characteristics of the sticky members, basically have a feeling: Costco goods both very cheap, but also very expensive. Very expensive feeling from every time you go to Costco shopping, a little inattentive purchase volume will be on the thousand dollars.
Third, the highly sophisticated commodity configuration. In addition to the opening of the first store brought a national shock, Costco’s second event that fascinated the people of the country, should be 1499 yuan original price to sell 53 degrees Feitian Maotai. This makes Moutai Guizhou headquarters once to increase the supply of sensational effect, has “deteriorated” to Costco to post a notice in the underground parking lot: Moutai no longer. But in addition, Costco has actually been in a small range of the cycle of renovation of the list of goods.
Fourth, the membership model. For one, the quality of users is better. It helps the enterprise to carry out the screening of customers, through this fee model, it captures the very high quality of goods required by the user group. Second, the concept of “sunk cost” is cleverly used to stimulate users to buy again and again. Users are paying annual fees, so in their hearts, there is a “sunk cost” concept. Third, the convenience of shopping. Once consumers become members, they can enjoy a variety of special services; for example, they can regularly receive information about the style, performance, price, etc. of new arrivals, and enjoy home delivery services. Finally, membership cards can be used to give gifts to friends and relatives. There are many forms of membership cards, and the supplementary cards can be transferred to others in the form of gifts.
The so-called membership model, which can also be called the paywall model, means that the merchant sets a certain threshold, which may be in the form of currency or other qualifications.
Only when you pass the threshold can you go to my business to spend, and the business is to provide such a group of people with high-quality goods or services, and then the formation of customer loyalty and stickiness, and this is the value of the paywall model.
Costco is one of the few stores in the world that sells the best products in the cheapest stores.
There are two kinds of physical retail in this society: one is called physical retail and the other is called Costco retail.
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