Costco is the world's 3rd largest retailer by sales, notching $190B+ annually (behind Amazon, Walmart).
The company is all about "value" and uses psychological hacks in its business model and store design to get shoppers to spend dough.
Here are 14 of them 🧵
1/ At Costco, the membership is the core asset. Customers pay $60-120 per year for the right to buy comically large cans of tuna (AKA incredible value).
In its last reporting year, membership fees were 2% of revenue ($4B of $195B), but accounted for 70%+ of Costco's $5B profits.
2/ Membership psychology 1
In the early 2000s, Costco CEO Jim Sinegal told Jeff Bezos (who would roll out Prime) that "the membership fee is a one-time pain".
But the value of the concept is "reinforced every time customers sees 47" TVs that are $200 less than anyplace else."
3/ Membership psychology 2
Costco's 110m+ members are hit by the "Sunk Cost Fallacy": people will spend more time and money on something if they've already made an investment (to "get their money's worth").
With a 90% renewal rate, members are clearly OK with the deal.
4/ The 1st thing you see...
...entering a Costco are affordable electronics like laptops, phones and TVs (Sinegal wasn't joking).
Why? Marked-down TVs are a more salient reminder of value than marked-down food. Also, other prices in the store looks cheap vs. big-ticket items.
5/ Barebones appearance
Costco has 800+ warehouses (~70% in US). They all have minimalist interiors that screams "value":
◻️ exposed beams
◻️ concrete flooring
◻️ Used cardboard boxes as "checkout bags"
It feels like a wholesale venue filled w/ "deals" vs. standard retail.
6/ Boxes stacked to the ceiling
In retail, there's a concept known as "stack 'em high, watch 'em fly".
The psychology is that when a product is stacked to the sky, shoppers will believe that retailers desperately want to unload the inventory, so it's perceived as a deal.
7/ The deals *are* great
Costco aims for "pricing authority", which means consistently providing the most competitive prices across the best products.
It negotiates hard w/ suppliers and caps markups to 15% (often eating price increases instead of passing it to customers).
8/ Kirkland Signature
Costco's white-label arm does $40B+/yr (~25% sales) and is the epitome of value at cost.
It contracts the *same* suppliers it already stocks to make a competing Kirkland brand (w/ a 1% improvement on some metric). Costco's distribution is worth the trade.
9/ (No) paradox of choice
Costco simplifies decision-making with only 1-2 choices per product. In total, Costco stocks 3k SKUs vs. 30k SKUs for typical supermarkets.
The products mostly come in bulk (which communicates "value") and has "per unit" prices to calculate savings.
10/ Big shopping carts
Costco increased the size of its carts in the past few years. And, why not? More space encourages more shopping.
Nothing like the industrial orange trolley though.
Costco has normalized it for shoppers to show off outrageous hauls (AKA "Costco Tetris").
11/ Store layout
Costco has a racetrack design: Shelves are on the outside w/ low-tables in the centre (this allows visibility to the entire store to entice shoppers).
Like most grocers, staples (meats/dairy) are in the back so you have to pass the whole store to get there.
12/ Rotating goods
It's not easy to memorize product locations, though.
There is no signage. And Costco regularly moves necessities -- which they call triggers (e.g., lightbulbs, paper towels) -- around the store.
These moves encourage movement and people to "treasure hunt".
13/ Samples
This is obviously not exclusive to Costco, but no place is better known for its near limitless free samples.
The psychology is simple: reciprocity (people are compelled to buy a product in *return* for receiving something for free).
14/ Long checkout lines
While Costco has introduced self-checkout, it's largely lacking in express checkouts.
Psychologically, shoppers don't want to wait in a long line for a single jug of milk. They'll want to make the wait worth it with a decent-sized shop.
15/ Cheap food on exit
Finally, Costco's $1.50 hot dog after the checkout. Like $5 rotisserie chickens, the hot dog is a loss leader for Costco.
Its price is unchanged since 1985 and sears value into people's brain as they leave. It also led to history's greatest headline ever:
16/ If you enjoyed that, I write threads breaking down tech and business 1-2x a week.
Def follow @TrungTPhan to catch them in your feed.
This Costco thread is a follow up to this IKEA thread:
21/ Apparently, these are the secrets behind Costco price-ending digits:
◻️ .99 = full price
◻️ .97 = store manager deal
◻️ .79 or .49 = manufacturer deal (trial run)
◻️ .00 or .88 or has an * = steep manager discount to unload inventory (discontinuing product)
22/ Finally, here is a glorious sh*tpost thread on Costco's "other" hacks (it's hysterical)
23/ *ADDENDUM: Also worth adding that Costco operates 600+ gas stations that offer low "member-only" prices (another great loss leader along with rotisserie chickens and hot dogs)
24/ One more note: Costco is the largest wine seller in America (it does $4B+ in alcohol sales, with wine making up half of that)
It regularly marks wine down 10-20% vs. competitors.
One of the Team USA rowers who won a Gold Medal is an investment banker and actually did the “B2B SaaS Sales” joke on Linkedin. Legend.
Here’s the rest of the post (perfectly formatted to show up in the feed as a shitpost): linkedin.com/feed/update/ur…
Justin if you’re reading this and are available for consulting, the research app team would love to engage your B2B SaaS knowledge for our Q4 sales roadmapBearly.AI
The amount of work Hayao Miyazaki and Studio Ghibli team put into a film is mind-boggling.
Each typically has 60k-70k frames, all hand-drawn and painted with water color.
This 4-second clip (“The Wind Rises”) took one animator 15 months to do. Insane.
The docu “10 Years with Hayao Miyazaki” shows him talking to the animator (Eiji Yamamori) after its done.
It’s so good:
Miyazaki: “Good job.”
Yamamori: “It’s so short, though”
Miyazaki: “But it was worth it.”
The animator gets a second of joy (he’s pumped) but on to the next.
Miyazaki doesn’t use digital FX or computer graphics. He believes “that the tool of an animator is the pencil.”
On a related note, here’s something I wrote about another Japanese legend dedicated to the craft (Ichiro Suzuki) and the art of mastery: readtrung.com/p/jerry-seinfe…
New York City paid Mckinsey $4m to conduct a feasibility study on whether trash bins are better than leaving garbage on the street.
The deck is 95-slides long and titled “The Future of Trash”.
Some highlights:
▫️The official term is “containerization”, which is the “storage of waste in sealed, rodent-proof receptacles rather than in plastic bags placed directly on the curb.”
▫️Two main types of containerization: 1) individual bins for low density locales; 2) shared containers for high-density.
▫️NYC needs to clean up 24,000,000lbs of garbage a day
▫️Containerization has only become the norm worldwide in major cities in the past 15 years.
▫️New York City first considered containerization in the 1970s but never conducted a feasibility study until now (Mckinsey’s sales team has been dropping the ball)
▫️Key considerations for container viability:
• POPULATION DENSITY: NYC has 30k residents per square mile (more dense than comparable big cities)
• BUILT ENVIRONMENT: Few places to “hide” containers due to history of infrastructure development.
• WEATHER: Snow creates challenges for “mechanized collection” in the winter.
• CURB SPACE: Mostly taken up by bus stops, bike lanes, outdoor dining and fire hydrants.
• COLLECTION FREQUENCY: NYC needs to double frequency of pick-up for estimated speed of trash that bins would accumulate.
• FLEET: A new garbage truck will needs to be designed to collect rolling bins at scale.
▫️ The proposed solution (literally garbage bins and shared containers) covers 89% of NYC streets and 77% of residential tonnage.
▫️The three case studies — because you gotta have solid case studies — are Amsterdam, Paris and Barcelona.
▫️There is a slide called “Why containerization matters” and three reasons are “rats”, “pedestrian obstruction” and “dirty streets” (the 21-year intern that did this slide billed at prob $10k an hour is my hero).
The study is actually pretty interesting.
I have no idea if $4m is a rip-off to learn that “yeah, we should put garbage in bins so rats don’t eat it” but I would have happily done it for 10-20% of that budget (and come to a similar conclusion).
It is actually an interesting deck. Just the thought of a 20-year old newly grad getting billed at an obscene rate to say”rats get to garbage” is kinda funny
Four more solid slides:
— By the numbers (daily garbage = 140 Statue of Liberty a day!!)
— City comparison
— Container comparison (looks like they did select the “scalable” trash bin)
— Curb side analysis
Think Mckinsey telling NY to “put garbage in bins so rats don’t eat it and people can walk” will work out better than when it told AT&T in 1981 that cellphones would be “niche.”
The Economist latest cover story on solar energy is packed with interesting stats.
▫️Solar energy will be the primary source of human energy use by 2040
▫️$500B spent on buying and installing solar panels in 2024 (nearly same “sum being put into upstream oil and gas”)
▫️Solar on track to produce “more electricity than all the world’s nuclear power plants in 2026, than its wind turbines in 2027, than its dams in 2028, its gas-fired power plants in 2030 and its coal-fired ones in 2032”
▫️Since the 1960s…the levelised cost of solar energy—the break-even price a project needs to get paid in order to recoup its financing for a fixed rate of return—has dropped by a factor of more than 1,000
▫️From the mid-1970s to the early 2020s cumulative shipments of photovoltaics increased by a factor of a million, which is 20 doublings.
▫️Over the same span, the “prices dropped by a factor of 500. That is a 27% decrease in costs for each doubling of installed capacity, which means a halving of costs every time installed capacity increases by 360%.”
▫️The cost of a kilowatt-hour of battery storage has fallen by 99% over the past 30 years.
The chart below — which they made vertical (kind of weird) — shows global useful energy consumption over the past century.
I’ll add two more posts after this one with excerpts on obstacles and opportunities.
— A lot of A/C for Sub-Saharan African (need 2TW of new solar just for Africa to reach India level of electricity use)
— Filter air continuously (reduce spread of airborne diseases)
— Carbon removal
— Water desalination
— AI/Data energy needs
Details from Red Lobster’s bankruptcy filing are wild and so much mismanagement:
▫️$1B in debt, $30m in cash
▫️Previous PE owner sold land and leased it back to Red Lobster at “above market rates”
▫️$20 Endless Shrimp cost it $11m but the interesting part is that one of the chain’s owners is Thai seafood firm Thai Union (which also owns Chicken By The Sea) and it may have used Endless shrimp to dump its own shrimp supply through the 578 restaurants in North America
▫️Thai Union became the only Red Lobster shrimp vendor, overcharging for shrimp and skipping quality reviews (Thai Union has written off its $500m+ investment)
▫️Red Lobster has had 5 CEO in the last 5 years (!!!)
▫️Sales down 30% since 2019
Red Lobster needed Yukitaka Yamaguchi — aka Japan’s Tuna King (sleeps 3 hours a day and knows where any fish is from on a single bite) — to run quality control.
Also, never forget Beyoncé name dropped Red Lobster with some R-rated verses in 2016 (“Formation”) and Red Lobster social responded and there was actually a brief sales surge.