Costco Stops Selling Coca-Cola

By George
Anderson

Coca-Cola is the largest soft drinker manufacturer in the
world. Costco is the largest warehouse club operator in the U.S. As of
now, the two companies are not doing business together following Costco’s
decision to delist Coke’s products in its clubs.

According
to Bloomberg, the warehouse club said it took the action because “Coca-Cola
has not provided Costco with competitive pricing so that we may pass
along the value our members deserve.”
Coca-Cola declined to comment on the story but said it was
looking forward “in a spirit of fairness” to resolving the dispute.

The Associated Press reported that the beverage brands
no longer being sold at Costco include “Coke Classic, Cherry Coke, Black
Cherry Vanilla Coke, Diet Coke, Coke Zero, Sprite and Squirt, Dasani
Water and Vitamin Water along with several energy drinks.”

Separately,
Coca-Cola said it plans to double the number of what it calls “boost
zones” or areas where it will work with retailers and
foodservice operators to make the company’s products more visible.

"Years
ago, the brands did so well you didn’t have to concern yourself to a
certain degree to this level of detail because the growth was just easy,"
Lauren Torres, an analyst with HSBC Holdings, told Bloomberg.
"It’s a more complicated business than it used to be."

Both Coca-Cola
and Pepsi-Cola lost market share over the past year, according to Beverage
Digest
.

Discussion Questions: Which party is hurt more by Costco’s
decision to stop selling Coca-Cola products? Does this dispute say anything
about the state of trade relations/balance of power between retailers
and manufacturers today? How do you think the trading partners will resolve
their dispute?

BrainTrust

Discussion Questions

Poll

35 Comments
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Dr. Stephen Needel
Dr. Stephen Needel
14 years ago

Coke is certainly the worse off for this. Whether or not Costco takes a hit depends on what else they are stocking. Generally speaking, club shoppers are not looking as much for brands as for value. If Costco has a suitable replacement, from a shoppers’ point of view, Coke will take the hit.

W. Frank Dell II, CMC
W. Frank Dell II, CMC
14 years ago

The loser is the consumer. Brand-loyal consumers will just have to buy Coke products in another format, which is not a big issue for them as Coke is sold everywhere.

While Costco says the issue is cost, this may be only part of the story. Manufactures want their product line displayed in the stores. Many times they buy shelf space for or force less successful items on the retailers.

Trade relations have been strained lately due the price increases manufacturers pushed through as commodities costs increased. Now that these costs have come down, manufacturers have not reduced their prices.

With only a few exceptions, the balance of power shifted from the supplier to the buyer years ago. Now we are seeing more buyers use this power. With the growth of Private Label, expect more issues like this.

Roger Saunders
Roger Saunders
14 years ago

I’m a major believer in that the retailer is in the sweet spot of the equation of moving goods and services–they control the space where a consumer makes the purchase decision. However, in this case, I believe that Costco is hurt more by this decision. Costco moves an enormous number of leading brand goods, and few products have stronger brand recognition and loyalty as Coca Cola.

A decision to stay separate won’t put either organization out of business, but a number of Costco shoppers/consumers are going to be frustrated as they are looking for Coca Cola products. Coke will, meanwhile, satisfy thousands of other nearby retailers in meeting their requests to remain competitive in the marketplace.

David Livingston
David Livingston
14 years ago

Coke seems to me to be the loser. I know they can’t give away the product and if they give in to Costco, they will have to give in to all the other retailers. We will probably see this issue coming up again and again as retailers hold the line on costs. If customers complain enough, or Costco sees this affecting sales, then the conflict might be resolved.

Kai Clarke
Kai Clarke
14 years ago

Neither party wins in this scenario, but Coke certainly loses more. Costco doesn’t need Coke to move its business ahead. However, Coke certainly cannot afford for one of the largest retailers to be serving Pepsi instead of their products at their deli counter, and to only be offering their competitor’s brands instead of their brands. Ego, poor communication and no intention of resolving current issues are all in play here. As long as this continues, both parties will continue to lose.

Steve Montgomery
Steve Montgomery
14 years ago

Beverages is one of those categories where people are brand-loyal. You don’t carry their brand and they will buy it somewhere else. The question is, will they stop shopping at Costco because they don’t have Coke products? The answer is no. Other than retailers seeking to take advantage of the difference in channel pricing, Coke products are not a major reason for people to shop at Costco and alternative locations to make the purchase are abundant.

As the number of retailers decrease either by consolidation or due to other factors, I believe the power is generally shifting towards the retailer. That being said, both Coke and Pepsi have the ability to influence retailers’ actions by the various programs that they offer. Failure to participate places a retailer in an uncompetitive position.

Raymond D. Jones
Raymond D. Jones
14 years ago

While it is difficult to say who is hurt more, it is clear that nobody wins in this type of disagreement. The expression that comes to mind is “cutting off your nose to spite your face.”

Coca-Cola is among the top brands in consumer equity and loyalty so it is obvious that many shoppers will not switch to alternatives. Costco will lose sales. Costco serves a distinct shopper segment so Coca-Cola will lose sales.

Costco is looking to provide their shoppers with a value vs. other outlets and has the right to decline to sell products that don’t fit its model. Coca-Cola must maintain some kind of price integrity and follow the trade laws on price fairness.

It seems to be a microcosm of trading partner relationships and it is unfortunate to see it come to this impasse. I have no doubt that the parties will ultimately see that this sets a dangerous precedent and find a resolution.

Mark Burr
Mark Burr
14 years ago

Coke is the clear loser. Anyone who shops Costco even semi-regularly knows that soft drinks can be purchased for less–much less–at the supermarket, on sale. It’s certainly no loss for Costco at all. They now have an opportunity to provide a space to some other product that will be of value. Half the fun of visiting Costco is seeing what they have ‘this time’.

It certainly doesn’t detract from me visiting Costco a couple times a month. In fact, it makes me more excited to visit next time to see what takes its place.

They have never had a real value on soft drinks or water in comparison to shopping regularly at the supermarket. This is simply a good decision on their part to delist items that detract from the perception of value to their customers. Their entire perception is based on value. They also live up to that by the experience they provide.

On a side note, Best Buy could take a lesson from Costco’s door checkers. They are the only place I have been where this practice is used and they don’t make you feel like a thief.

I am a HUGE fan of Costco. They make very few mistakes and this is not one either.

Years ago, I removed Frito Lay from my stores not as a result of a dispute over price, but a dispute over handling of receiving and price/cost changes. The result was an increase in sales of every other snack vendor. Their local management showed up every day for their month suspension asking to return. They returned after a month in full compliance. My guess is Coke will return and deliver a value to Costco’s customers. It will not be soon. I suspect Costco will hold this decision for some time.

Too often we forget that in this case, Costco is the customer. Coke needs to think about that for a while. They are not a ‘have to have’ product for this retailer. Too often we think that manufacturers hold the cards and retailers have no choice but to carry certain products. Retailers are customers too. They have much more leverage than they think they have, especially when they stay focused on what they have to deliver to their own customers. In this case, Costco simply has to deliver a value. If they can’t, they are better off selecting different products to fill their limited selection of SKUs that do deliver a clear value to their customers.

Shilpa Rao
Shilpa Rao
14 years ago

I think Coca-Cola is worse hit since not many would stop shopping at Costco if Coca-Cola products are not there. Customers have several strong reasons to shop at Costco and they know, over time, both would resolve their dispute. However, some brand-loyal customers would shop at competitors for Coca-Cola products, but that wouldn’t mean they would stop coming to Costco.

Max Goldberg
Max Goldberg
14 years ago

I’m with Frank on this topic; the consumer is hurt the most. Coke and Costco need to work out their differences. Costco may not get Coke products at the price it wants and Coke may not get the displays it wants.

While this battle continues, it will be interesting to see if Costco shoppers forgo Coke and buy what’s in the stores.

Phil Rubin
Phil Rubin
14 years ago

While shopping at Costco this past weekend, I noticed they were out of Diet Coke and then heard of the disagreement.

While the consumer loses out in having to shop elsewhere for Coca-Cola products, the real loser is The Coca-Cola Company and its bottlers. Given the average basket size at Costco and the reality that customers don’t shop Costco just for Diet Cokes, between the two companies it’s a hit to the pop shop. Costco gives up just a bit of incremental revenue, minimal if no margin and will likely get better terms from Pepsico and others in the unlikely event that it does not reconcile with Coca-Cola.

As for our basket and reason for that shopping trip; while the list included Diet Coke, it also included plenty of other things and it’s not as though Costco completely replaces a trip to the grocery store. The last thing that The Coca-Cola Company wants to do is concede its share at Coscto. Expect a quick reconciliation and maybe even a stronger partnership in the future.

James Tenser
James Tenser
14 years ago

This is a serious blow to the foundation of the 100% ACV myth.

Brands have long sought to achieve distribution across all the retail outlets in a market area–the “all commodity volume.” This is especially prized for impulse products like soft drinks, since consumer loyalties tend to become more flexible with the degree of thirst. Coke use to call this “within an arm’s reach of desire” or words to that effect.

But Costco soft drink sales by the case are not impulse driven. They are comparatively rational, based on price, not speed of access. If Costco can’t keep unit prices a meaningful increment below supermarkets or mass merchants, why should shoppers stock up?

In my opinion, Costco suffers little when it cuts Coke products out of the mix. Soft drinks are very substitutable and Costco shoppers are used to dealing with limited brand options.

Even if a few baskets are reduced in size, Costco is unlikely to lose trips over a cola brand. Its shoppers are already split with other retailers.

A final thought: Could this dust-up be a harbinger of PL soft drink introductions to come? Costco just introduced a premium Anejo Tequila under its Kirkland label. Are its shoppers ready to embrace Kirka-Cola?

Gene Hoffman
Gene Hoffman
14 years ago

The is a tale of “hurt.” A marketing marriage begins as a partnership between a manufacturer and a retailer. When one powerful partner “hurts” the other, this old saw leaps forward, “You always hurt the one you love” and now we are being asked which partner is “hurt” the most?

For years suppliers have held sway in most partnerships. Now the tide is turning and that allowed Costco to dare kick out the Number 1 soft drink company in the world. But will Costco shoppers feel “hurt” if they can’t buy Coke products there and will some shop elsewhere? These are $64,000 questions…..

Both Costco and Coca-Cola can be “hurt” by Costco’s power move. Coke is a popular and powerful iconic soft drink, worldwide. Costco lives on the same plateau nationwide. Sensibly these two make a great team and they will find a way to make up. Next will come the brief counteract, then new negotiations resulting in the return of Coca-Cola to Costco’s floors with political kiss-and-make up gestures, leaving a hidden “hurt” and perhaps vengeance in Atlanta.

Dave Peer
Dave Peer
14 years ago

Coke is hurt more. Costco needs only to fill its real estate with comparable, high-value product.

Rick Myers
Rick Myers
14 years ago

I understand that Coke and Costco both lose in this situation. However, why sell a product that you don’t get the expected profit on? There are near substitutes available. Albeit not with the same brand recognition.

Ralph Jacobson
Ralph Jacobson
14 years ago

Coke is most most valuable brand, of ANY kind in the world. Period. That means the consumer demands it, and, bottom line, Coke will do just fine. ‘nough said.

Benjamin Smith
Benjamin Smith
14 years ago

Coke wins and Costco loses. Coke is one of the few brands that has “retail leverage.” While club membership is based on value, the growth in adoption of club membership by consumers was driven by improved assortment of their favorite brands. Members have been trained to look for their brands. Coca-Cola in particular is a brand that for many people, there is no substitute. The choice isn’t Coke or Pepsi, or Coke vs generic cola–it is Coke vs. Coke Zero, or Coke vs Diet Coke.

Maybe Sam’s Club could get away with this where their shoppers are perhaps more focused on value, but Costco in particular has succeeded by offering the most upscale, premium selection of big brands balanced with high quality private-label value. Club members have also been trained to expect that if their particular brand/item isn’t one of the chosen SKUs in the warehouse, they just buy it at their regular food/drug/supercenter. Savvy club members already know that soft drinks such as Coke are rarely a good deal at Costco anyway.

Liz Crawford
Liz Crawford
14 years ago

I believe that Coke is hurt more. The reason is that the shoppers at Costco are high-income, educated people, generally speaking. This is a segment that is very valuable to the brand.

Costco acts like a curator of brands for this segment, so that the brands on its shelves are tacitly endorsed by the retailer. Coke buyers may be urged to switch, resulting in lost immediate sales, as well as future income. This is especially true for gatekeeper shopping, where younger generations may develop loyalty to other brands.

Bill Clarke
Bill Clarke
14 years ago

Sounds like a “double dog dare” to me. Neither side was willing to give, so the customer cannot buy Coke from Costco. The danger that Coke faces is that consumers can be fickle about substituting one brand for another. If a vending machine is out of Coke, but Pepsi is available, many consumers will select Pepsi. It is likely that some steady Costco customers will switch to another brand or shop for Coke elsewhere. I’m not so sure I would want a loyal customer experimenting with a different brand. Who says they won’t like the new brand better?

Mark Baum
Mark Baum
14 years ago

Mutually assured destruction–it embodied “Cold War Politics,” just as it does “Trading Partner Relationships” in an era of consolidation and globalization. Just as “brinkmanship” pushed the US and Soviet Union to the edge at times, so does pricing (and related issues) in the CPG/Retail landscape. Of course, there are no “winners” and the collateral damage is to consumers, as it often was to citizens in the Cold War era. Both Coca-Cola and Costco will pull back from the brink at some point; the question is: do both water down their equity with consumers–even just a little bit, in the interim….

Li McClelland
Li McClelland
14 years ago

Costco comes off looking thuggish and blackmailish here. And they are clearly putting out a shot across the bow to other vendors, not just Coke. If the price for Coke at Costco needs to be a few cents higher, then let the CUSTOMER be the one to decide if it’s worth the cost and convenience to buy Coke there. Coke is a deep preference for millions of people. Substitutes are highly unlikely and, while this will be resolved, UNTIL this is resolved Costco is sending their customers off to other stores to pick up their cartons of Coke. This is one of the few obvious mis-steps Costco has had in their illustrious rise, but it’s a biggie. Making it so public is even worse. There are probably a lot of Coca-Cola Company shareholders who shop at Costco. Wonder whose side they will be on.

Mark Leventhal
Mark Leventhal
14 years ago

Coke has two separate products/businesses at Costco. I do not believe a lot of can & bottle customers will switch Coke with Pepsi. However, the fountain and snack bar business is very separate. People will drink what Costco serves. Last year Costco sold over 84,000,000–yes 84 million–hot dog and coke combos. In addition are all of the 58 cent drinks they sell with the pizza and such. That is the business Coke stands to lose and will not be able to replace elsewhere.

My guess is Coke got caught with lower prices at Walmart/Sams and Costco wants retribution.

Jack Pansegrau
Jack Pansegrau
14 years ago

Costco and the consumer are the clear winners–this strengthens the Costco brand and promise to deliver good values to their members. It’s the reason many shop ‘first’ at Costco for appliances, television, and all products they carry. It’s the same message Walmart delivers with EDLP–after a while the customer ‘learns’ and shops at the trusted retailer with fair prices and a fair ‘return policy’….

Paul Stanton
Paul Stanton
14 years ago

If Costco cared at all about their customers they would not have discontinued Coke. What happened to “We are in business to satisfy our customers…therefore we make a profit…”???

Mel Kleiman
Mel Kleiman
14 years ago

Look at all of the posts! Interesting that a question about who is hurt more in the distribution of soft drinks pulls almost more comments than anything else posted in the last 6 months.

As to who gets hurt more; neither of them. Coke will be back and Costco will be happy to have them.

Richard Wakeham
Richard Wakeham
14 years ago

The comments seem to address only the individual consumers. However, we must remember the many small businesses–grocery, restaurants, etc–that purchase for resale. It will be interesting to see what their responses are. Is the possible loss of their purchases viable to Costco?

Bruce Yuen
Bruce Yuen
14 years ago

I think Coke loses more, but this article does not contain sufficient details on the dispute.

Like most companies, Coke probably wants to raise pricing, increase/gain distribution of its various brands including energy & non-carbs (Vitamin Water, iced teas, Powerade, etc), and new packages, while seeking aggressive growth targets. This is all meant to get Costco to shift volume away not only from PepsiCo, but also other beverage brands including Poland Spring/Nestle Water brands,and probably even Costco private label.

Costco’s business model of providing their customers with a fun, “treasure-hunting” shopping experience with low everyday prices (let’s be honest, they DON’T have the lowest prices across the board, e.g. soda, TP, paper towels, meat, etc, are all cheaper at supermarkets) has meant that space is a premium and interesting & innovative items that turn over quickly often get the nod over staid ones. Why devote more space to a declining category like CSDs, even if it is Coke, unless Costco has stores in markets like India or China. So 36 pack cans of soda at $9.49 (in CT) is a good EVD value but consumers can get it for about the same in supermarkets (while buying less, like 12 packs); retail/business customers can do better by buying it direct off the Coke trucks.

Maybe Costco fired the first salvo by telling Coke (& Pepsi for that matter) that they want to shift beverages and that means reducing CSD SKUs while adding new treasure-hunting items that–aghast!–aren’t Coke brands. If so, then Coke reacted as only a leading-brand supplier would: do that and my prices will go up because you NEED us.

Pepsi is waiting in the wings salivating, hoping Coke screws up and then swoops in to take the valuable fountain business away–that’s the real business and branding opportunity that Coke has with Costco. Or has Costco decided to award that to Pepsi already, hence the standoff? Things are always interesting in the cola wars!

Finally, for years club stores have wanted to sell fountain syrup to their business customers but Coke has refused in order to protect its existing vast & profitable distribution system. Could this be part of it?

RetailWire: do some more investigation on this!

Gene Detroyer
Gene Detroyer
14 years ago

Some retailers are very good at shooting themselves in the foot. Costco is not one of them. Be assured that this was not a hasty decision on Costco’s part and they determined that they would be no worse for it. Coca-Cola is the loser here.

The consumer in NYC is no loser. Duane Reade regularly sells two Coke 12-packs for $4. That sounds like a pretty good deal and I don’t imagine that Duane Reade is unique.

Craig Sundstrom
Craig Sundstrom
14 years ago

This has all the makings of the next national “crisis”: once Health Care is “solved,” I expect Congress will intervene! 🙂

Mark Burr
Mark Burr
14 years ago

csundstom may be right. President Obama may have to invite them to the White House for a beer? Wait, maybe a Pepsi? Nah, Coke is it, isn’t it?

Mike Romano
Mike Romano
14 years ago

No one person shops just at Costco. It’s just as easy picking up enough Coke product at your other trip to Albersons, Kroger, Meijer, etc, especially when it’s a loss leader and is cheaper than Costco. Loser is Costco.

M. Jericho Banks PhD
M. Jericho Banks PhD
14 years ago

Remember how consumers hoarded Coke when New Coke was introduced? We Coke drinkers are fanatical. All the other stuff Coke makes? Not so much. To many of us, Coke is a staple and not a commodity. We’ll get it someplace else. Costco’s Coke bidness will simply move to other retailers. I believe Costco is the loser here.

Regarding Costco’s “value for our customers” argument, I have three observations that have been touched on by others today: First, what guarantee is there that Costco will pass along any extra Coke discounts to their customers? These days, even Costco, the paragon of customer/member benefits, is likely to take the money and run and Coke knows it. Second, if Coke bends a knee to Costco, their other retailers will swoop in for their own piece of the pie. Walmart is watching. And third, will Costco be able to economically manage the shelf space formerly occupied by Coke products and policed by the superb Coke DSD team?

Herb Sorensen, Ph.D.
Herb Sorensen, Ph.D.
14 years ago

This development should be seen in the general context of the evolving struggle of brands and retailers for control. I believe that as “social media” plays a larger and larger role in shopping, including in the aisles of the stores, the power of the brand will rise.

Right now, Coke can’t talk to the shoppers in Costco without having their products in the aisles there. Costco has nearly an absolute lock on communicating with their shoppers while they are in their stores–as do other retailers. That lock is eroding as shoppers become connected 24/7, and learn to use their personal devices–phones, PDAs–as shopping assistants.

BTW, this is certainly not the first “Mexican standoff” between Coke and a significant retailer. The last one I heard about, the retailer blinked first.

Scott Knaul
Scott Knaul
14 years ago

I have no idea if there are losers or winners in this beyond the Costco customer that is loyal to Coke. This is about two big companies posturing and I’m sure they will be able to agree soon enough. I don’t think it will be long before Coke is back on the shelves at Costco.

Joe Schwalbach
Joe Schwalbach
14 years ago

Costco is allowing their ego to take this position. They believe that their patrons will transfer their purchase to another brand, but soft drinks have one of the strongest loyalty profiles of any product. SuperValu/Pick & Save tried this in Wisconsin about 20 years ago, as the retailer took funds for displays they never built. Coke pulled their product from the stores. The retailer was hurt greatly and re-thought their position and Coca Cola returned to the stores. The same will happen at Costco, as Coke patrons will find their beverages elsewhere.