ANCHORAGE, Alaska – When Costco opened on West Diamond Road in Anchorage, Alaska in 1984, it didn’t seem like the future of food. The ornate, shack-like warehouse the color of stale coffee offered the products and specials Alaskans went crazy for: staples like tomato sauce in huge quantities, and local specialties like caribou sausage. Given the state’s harsh environment and the hours, sometimes days, people have to travel to get groceries, Costco was an instant hit.
Today, the parking lot is filled with jacked-up 4x4s with studded tires and mobile fortress-like mobile homes, giving it a somewhat unconventional feel for a grocery store, and the store’s inventory is a bit more innovative, too: neoprene survival suits, a meat grinder and gun safes.
One of Costco’s first stores, the Anchorage store, once seemed like an outlier struggling to survive, but today it shows just how forward-thinking the company was.
“About a quarter of the population stockpiled nonperishable foods in 2020,” said Jennifer Mapes Crist of market research firm Packaged Facts.
Nearly one-third of U.S. customers shop at Costco, the world’s third-largest retailer after Amazon and Walmart.
But Costco’s success goes far beyond stockpiling: The company has masterfully manipulated the psyche of American consumers, appealing to both their responsible-shopping superego (“12 cans of tuna for $18!”) and their buy-now ego (“I deserve a 98-inch flat screen”).
On the surface, Costco is a discount store, a place to save money and lower grocery bills, but it’s also an aspirational shopping experience that satisfies a desire for most Americans: conspicuous consumption.
Few companies have as much influence over what we eat (or wear, or fuel our cars, or personal hygiene products). Costco dominates multiple categories of our food supply: beef, chicken, organic produce, and even fine Bordeaux wine, of which it sells more than any other retailer in the world. Costco’s private label Kirkland brand generates more revenue than big-name brands like Nike and Coca-Cola.
Despite its success, the company is not well known: Its upper management is closed and secretive, and outside of quarterly reports, Costco reveals very little about its internal workings.
But to Charlie Munger, the billionaire investor who served as Warren Buffett’s right-hand man at Berkshire Hathaway, the balance sheet says it all. In his final interview before his death last year, he put it succinctly: “This is just the perfect company.”
“It was all about trust.”
Once Costco members join (there are 134 million of them worldwide), they rarely quit.
In fact, enthusiasm for the brand is so intense that it has prompted tributes on social media, celebrity appearances on late-night shows in an attempt to drum up sympathy, and even a book called “The Joys of Costco.”
Its founder was a Bronx-born lawyer with utopian ideals and strict morality.
Born in 1916, Sol Price was the son of a garment worker from Minsk, Poland, and part of a generation of exiled Jews and other Europeans who made their mark in small businesses in New York City. In the 1920s, his family emigrated to San Diego.
After studying law at the University of Southern California, Price began his career as a rep for grocers and other merchants. In the 1950s, he transformed a vacant warehouse in San Diego into a members-only bazaar where, for a small fee, customers could buy everything from socks to cigarettes at wholesale prices. The secret to the business, which he called FedMart, was simple: keep the members renewing year after year.
“How can I sell something with the lowest possible profit margin?” Price explained his philosophy to Fortune magazine in 2003. His overarching goal, he said, is to “look at everything from the perspective of whether I’m being really honest with the customer.”
Sol Price’s FedMart, through a series of mergers over the years, became the company we know as Costco in the 1990s. Now headquartered in Issaquah, Washington, the company has stayed true to Price’s vision to an extent that’s unusual for a modern company. The company still values relationships, and members seem to be happy, with a 93% renewal rate. Membership fees were $1.12 billion last quarter, about two-thirds of Costco’s $1.68 billion net income. In other words, the interdependence continues.
“A huge ecosystem”
No one flies in to shop in Sugar Land, Texas, 4,000 miles south of Anchorage, but in this swampy suburb of Houston, life revolves around Costco.
Once a sugar industry prison farm, Sugar Land has been transformed in recent years into a master-planned community complex, and in June, Costco opened Warehouse No. 882 in the prime location, its third warehouse in the area.