Costco Minus Coke Illustrates Retail Leverage

By Ben Smith

Retail Leverage’s humble beginnings (and continued existence) comes from our collective experience of trying to build support for ideas we have wanted to implement in our own businesses.  We’ve provided a healthy balance of new ideas along with highlighting the work of others.

In particular we have become “experts” at providing examples of other brands strategies that led to retail success against the big boys in the big boxes.  Admittedly our focus has been on challenger brands and/or new entrants because they provide teachable moments to illustrate the importance of retail leverage.

THANK  YOU COSTCO, THANK YOU COKE

Now we’ve been presented on a silver platter the opportunity to clearly illustrate the concept of retail leverage thanks to our friends at Coke and Costco.

Unless you’ve been living under a rock, you’ve probably heard that Costco is delisting Coke. In dating terms – splitsville.  In political terms: Costco to Coke: Drop Dead.  In country terms, “don’t let the door hit you on the way out”.  No matter how you put it, the move has been made.  There is no going back short term.  Very soon there will be no Coca-Cola products at Costco’s approx. 500+ warehouses.

ARMCHAIR QUARTERBACKS ABOUND

This issue struck a nerve with both the retail/vendor community, as well as consumers.  For comparison and scale, I’d say Bill Belichick’s decision to go for it on 4th and 2 from his 28 last Sunday night ignited less passionate debate – although even the author of Freakonomics has an take on his decision.

It is presumable that both Costco and Coke realized that the other was firmly entrenched and believes that the other party needs them more.  All the game theory scenarios have been run by both parties.  There isn’t much left to be said from any of the sides until it fully plays itself out.

On a related note I love the blog “Mind Your Decisions” by Presh Talwalkar – he provides real life examples that illustrate game theory – I hope he covers this topic.

RETAIL LEVERAGE TEACHING OPPORTUNITY

Coke and Costco are about to find out, together, who has retail leverage in this relationship.  The only question is how long will it take?  One party will eventually have to make concessions, or more concessions than the other guy, and for those of us keeping score at home, it should be obvious who the winner is.

To answer the question “who has retail leverage”,  think about who could get away with what is going on between Costco and Coke.  I don’t believe Pepsi couldn’t get away with this in the same category – they wouldn’t walk away from Costco.  Conversely I don’t think a Kroger or Publix couldn’t get away with delisting Coke.

Think about other categories.  At its most basic form, Retail Leverage comes down to who needs who more.

“Does the retailer need you, or do you need the retailer?”

Once you know the answer to that question when it comes to your own brand / product, your work is cut out for you.  If you don’t have Retail Leverage you better be striving for it.  By the way, did I mention I know a great place where you can get ideas on how to gain Retail Leverage? If you do have it, work to cement your position.  But even then, as you see with Coca-Cola, the most valuable brand in the world doesn’t necessarily have enough retail leverage, at least according to Costco.

From my base of categories I have experience with, HP inkjet printers are one of the few brands I’ve seen with significant Retail Leverage.  I can’t imagine how far HP would have to push a Staples, Best Buy, Office Depot, OfficeMax, or Costco until they finally would have no choice but to delist them.  Maybe Walmart could short term – but even then as Walmart has become more reliant on having the big technology brands that people expect, HP has gained significant leverage there too.

Full disclosure – I’m extremely loyal to Coke (Coke Zero specifically).  I am also loyal to Costco.  I go out of my way to give both my business.  That means bypassing a nearby Sam’s Club for a Costco 6 miles farther away.  That means when I order a Diet Coke and they tell me it is Diet Pepsi, I switch to water.  Or only go to fast-casual chains that offer Coke products.  So I have a place in my heart for both.  But only Coke has a place in my stomach.  And maybe my dentist’s new jet-ski.