Costco has plenty of competition. Walmart, Sam’s Club, and Amazon are all fighting for consumers’ wallets.
But one of Costco’s more interesting competitors isn’t another warehouse club. It’s Aldi.
The popular discount grocer has built a growing U.S. following, and for good reason.
An impressive 92% of surveyed Aldi shoppers said they would recommend the retailer for its value, while 91% said Aldi helps them stay on budget.
The survey also found that shoppers can save up to 22% by choosing Aldi’s private-label products instead of competitors’ private-label products.
And Aldi isn’t just relying on price. The company says shoppers rate its store brands as having the best quality compared to competitors.
Aldi also ranked first among the retailers measured for offering unique and exciting products. And that’s something Costco should pay attention to.
Aldi has built a private-label machine
There’s an obvious comparison between Aldi’s store brands and Costco’s Kirkland Signature brand.
Both retailers have made private-label merchandise a central part of their businesses.
Instead of simply putting national brands on shelves and competing primarily on price, Costco and Aldi use their own brands to control products, pricing, and the customer experience.
But Aldi and Costco take different approaches.
Aldi’s relatively small assortment is heavily weighted toward private-label products. That means shoppers aren’t simply visiting the store to find a cheaper version of a product they already know. They’re often buying brands that exist primarily or exclusively at Aldi.
That’s helped Aldi turn private labels into part of the shopping experience itself.
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Kirkland Signature plays a similar role at Costco, but on a much larger canvas. The brand stretches across groceries, household products, clothing, and numerous other categories.
For Costco members, Kirkland is also part of the reason the membership makes sense. The retailer can offer products under its own label while maintaining the value proposition that keeps shoppers coming back.
“The centerpiece of Costco’s Kirkland brand strategy is trust,” retail expert Mark Ryski told Retail Wire.
“Costco works hard to ensure that the manufacturers meet high quality standards for their Kirkland brand,” Ryski continued. “Quality products further build the trust as it extends across categories.”
Aldi could make Costco work harder
While Costco should keep an eye on what Aldi is doing, the warehouse club giant doesn’t necessarily have to worry about Aldi stealing its customers. That’s because the two retailers serve fundamentally different purposes.
Aldi is primarily a grocery destination. Costco, on the other hand, is a membership warehouse that sells groceries alongside everything from electronics and furniture to clothing.
Costco also has something Aldi doesn’t — a membership relationship.
Costco’s membership model gives the retailer an ongoing incentive to make shoppers feel they’re getting enough value to renew every year. The company recently highlighted its 92.2% U.S. and Canada membership renewal rate during its most recent earnings call, underscoring just how important that relationship is to its business.
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Still, Aldi’s success offers Costco a useful reminder that shoppers aren’t satisfied with low prices alone. Rather, they want quality, interesting products and the feeling that they’re getting something they can’t easily find elsewhere.
That’s an area where Costco already has a powerful weapon in Kirkland Signature.
Aldi may therefore push Costco to keep experimenting with its private-label assortment, improve its value proposition, and find new ways to surprise members.
“Aldi isn’t stealing Costco’s customers. It’s stealing traditional grocery market share,” said RTM Nexus CEO Dominick Miserandino.
As he explained, Aldi operates on 15,000-square-foot footprints, fast fill-in trips, and extreme operational efficiency with private-label goods.
“It’s built for the consumer running in to buy $40 worth of cheap staples on a Tuesday afternoon,” Miserandino said.
Costco, by contrast, is “selling a high-margin subscription service disguised as a warehouse,” according to Miserandino. And it’s doing its job well.
“When Costco pulls a 92% North American membership renewal rate, consumers are telling you that the subscription value is completely locked in,” Miserandino said.
Maurie Backman owns shares of Costco.
