Costco Stops Selling Coca-Cola

Discussion
Nov 17, 2009
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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?

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35 Comments on "Costco Stops Selling Coca-Cola"


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Dr. Stephen Needel
Guest
11 years 5 months 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
Guest
11 years 5 months 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
Guest
11 years 5 months 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
Guest
11 years 5 months 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
Guest
11 years 5 months 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
Guest
11 years 5 months 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
Guest
Raymond D. Jones
11 years 5 months 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
Guest
11 years 5 months 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… Read more »
Shilpa Rao
Guest
11 years 5 months 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
Guest
11 years 5 months 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
Guest
11 years 5 months 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
Guest
11 years 5 months 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… Read more »
Gene Hoffman
Guest
Gene Hoffman
11 years 5 months 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… Read more »
Dave Peer
Guest
Dave Peer
11 years 5 months ago

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

Rick Myers
Guest
Rick Myers
11 years 5 months 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
Guest
11 years 5 months 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
Guest
Benjamin Smith
11 years 5 months 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
Guest
11 years 5 months 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
Guest
Bill Clarke
11 years 5 months 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
Guest
Mark Baum
11 years 5 months 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
Guest
Li McClelland
11 years 5 months 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
Guest
Mark Leventhal
11 years 5 months 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
Guest
Jack Pansegrau
11 years 5 months 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’….