David Milliken's Brand Marketing Blog

The Real Thing v The Big Box: WAR!

Posted in Brand Marketing Current Events by dlmilli on December 14, 2009

Two weeks ago, Costco stopped buying all The Coca-Cola Company products. This story marks an overt battle in a previously unspoken war between brands and retailers that has waged for decades.

Consumers often joke that one or two companies sell everything we buy. That is not far off. But it is not the manufacturers they have to worry about, it’s the retailers.

In the 2009 Fortune 500, retailers are prevalent across the top companies in America, including Wal-Mart (#2), Kroger (#22), Costco (#24), and Target (#28). The only fast moving consumer goods producers to crack the top 30 is Proctor & Gamble at 20. Fortune also measures the retailers to be growing faster.

20 years ago the story was vastly different. The top 30 companies included Philip Morris (now Altria, #2), P&G (#15), Nabisco (#20), and PepsiCo (#20). Several more rounded out the top 100 without a single retailer until OfficeMax at 112.

Who will win this classic game theory situation? Let’s consider potential short-term outcomes:

Coke will lose revenue. But likely this impact can be absorbed.

1) The world’s largest beverage company sells it products at nearly every retail outlet in the US and around the world. Costco is likely a small fraction of their business.

2) Due to great brand marketing, most beverage brands are not interchangeable. Many consumers will delay purchase until they reach an outlet that carries their preferred brand. Other retails are likely cozying up to Coke and will make up most of the lost revenue.

Costco probably does not have white knights in the waiting. Pepsi probably cannot offer terms that will keep Coke out of Costco permanently. So why give in to Costco? If anything, Pepsi may look to raise prices because Costco’s biggest negotiating chip is spent.

Longer-term, Coke will lose revenue. It is unlikely Costco will lose members, their primary source of profit, due to de-listing Coke products. But they are susceptible to just one or two other major brand companies (P&G, Unilever, Kraft) not agreeing to their terms. Members may begin to defect if shopping at Costco means settling for Kirkland’s Signature cola, and peanut butter, and tooth paste, and Champagne.

Kirkland's Signature Champagne on David Milliken's Brand Marketing Blog

So how does this situation impact the daily life of a brand marketer? As soon as I heard this story I realized the impact on my profession would be great, regardless of the result. No, I do not expect we will pull our products from Costco anytime soon. And the “winner” will not be known immediately. (I can imagine the generic joint press release now.) But over time, the outcome of Coke v Costco will impact how I partner with retailers in the future.

If asked, most consumers probably would say they do not care who wins. But we consume brands, not stores, and brands help us express who we are. I doubt many families have pictures of their kids’ first experience comparing costs per pound on bags of salt or savoring “a Kirkland’s Signature and a smile.”

Fruit by the Foot on David Milliken's Brand Marketing Blog

Fruit by the Pallet. Click the picture for two decades of whimsical ads.


One Response

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  1. Gerry said, on December 16, 2009 at 8:21 pm

    Great post man. Dude you’re smart.

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