Trung Phan Profile picture
Oct 23, 2021 26 tweets 12 min read Read on X
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:
17/ I discuss interesting topics like this once a week (with a healthy dose of dumb jokes) on the Not Investment Advice (NIA) podcast.

Check it out: linktr.ee/notinvestmenta…
19/ My best Costco tweet before this thread
20/ Jim Sinegal on why Costco always passes the savings onto customers.

🔗 mitsloan.mit.edu/ideas-made-to-…
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.

🔗 buzzfeed.com/amphtml/hannah…
25/ Some people asked about an Amazon Prime thread. Actually did one here:

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More from @TrungTPhan

Jul 28
The invention of bánh mì is a combination of climate, trade and urban layout of Saigon in late-19th century designed by French colonist.

When the French captured the area in 1859, most economic activity in the region took place along the Saigon river.

The population built makeshift homes tightly bundled by the river banks. Outgrowth from this eventually lead to narrow alleyways between many buildings that is trademark of the city (the Khmer named the region Prey Nokor then French renamed it Saigon and then it was renamed to Ho Chi Minh City in 1976 after end of Vietnam War).

Over decades, the French created European street grids and built wide Paris-type boulevards in the city to funnel commerce to larger markets (also make the city easier to administer).

It was at these markets that French baguettes were introduced and traded.

Bánh mì bread is known for being flaky and crispy on the outside while fluffier on inside (so god damn good).

Two features of Saigon helped create this texture:

▫️Climate: The heat and humidity in Southeast Asia leads dough to ferment faster, which creates air pockets in bread (light and fluffy).

▫️Ingredient: Wide availability of rice meant locals added rice flour to wheat flour imports (which were quite expensive). Rice flour is more resistant to moisture and creates a drier, crispier crust.

Fast forward to the 1930s: the French-designed street layout is largely complete. Now, the city centre has wide boulevards intersected by countless narrow alleyways.

The design was ideal for street vendor carts. These businesses were inspired by shophosue of colonial architecture to sell all types of goods as chaotic traffic rushed by.

Vietnam has some of the most slapping rice and soup dishes, but many people on the move in the mornings wanted something more portable and edible by hand.

Bánh mì was traditionally upper class fare but it met the need for on-the-go food.

Just fill the bread with some Vietnamese ingredients (braised pork, pickled vegetable, Vietnamese coriander, chilies) along with French goodies (pate).

Pair it with cà phê sữa đá (aka coffee with condensed milk aka caffeinated crack) and you’re laughing.Image
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Haven’t lived in Saigon for 10+ years but ate a banh mi every other day when I did.

While there, I also sold a comedy script to Fox (pitch: “The Fugitive meets Harold & Kumar set in Southeast Asia”).

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Norway’s SWF roughly is 65% equity, 25% bond, 10% real estate/infra (all global).

Unsurprisingly, its largest holding is Apple ($47B, or 1.4% of the entire company).

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Norway spared no expense on its SWF website. Look at that carousel!
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