White-Labeling At Costco: What It Means And How It Saves You Money

White labeling is when a third party manufactures a product, which is then given to another company to brand and market the product. While it may sound counterintuitive, this arrangement allows each firm to focus on its respective specialties for optimal performance, saving both time and money, which are arguably a company's two most valuable assets.

This strategy is commonly seen in supermarkets but can also be found in electronics and service industries. Common white label products include phone accessories, mugs, and coffee beans. As mentioned above, the retailer will buy these products in bulk and brand it with its logo resulting in both the retailer and the consumer saving money, a win–win situation.

Costco's Kirkland Signature brand is renowned for this practice and goes a step further by placing its products right next to the national brand on the shelves, making it easy for the consumer to see the price difference. As such, a 40-count pack of Duracell AA batteries sells in the Seattle area for $17.99, compared to the Kirkland brand that sells a 48-count pack for $15.99. As you might guess, Costco white-labels Duracell batteries under its Kirkland brand. This probably makes you wonder why Duracell would take the hit seeing as they appear to be the ones losing money. The beauty of this practice is that it benefits Duracell as well.

For companies like Duracell, white-labeling might seem like a backwards idea, however, engaging in this practice allows firms to reach consumers more strategically, expand their brand and product lines through diverse offerings, and save money bringing a product to market freeing up financial resources to other areas. Although this can oversaturate the market and create a dependency with suppliers, it ultimately gives the company breathing room.

As for Costco and other retailers like Trader Joe's that rarely sell name brand products, the reason is pretty straight forward. The company buys the unbranded products in bulk at a lower price. These products are sold at a lower price than the national brands while maintaining quality and customer satisfaction.

Lastly, you, the customer, save money simply by choosing the discounted white-labeled product. According to CNN, Kirkland brand products are priced 20% lower than the national brands, a discount that quickly adds up especially with Kirkland Signature grass-fed butter. Put simply, white labeling is a potent tool in Costco's price-cutting toolkit, just be sure to be on the lookout for these red flags.