Analyzing The Costco's Business Model

The Costco business model is a subscription business model, whereby memberships are sold to gain access to the stores in order to purchase their grocery products. Unlike traditional grocery stores that simply sell product, Costco also sells the service that leverages their bulk buying power, to pass savings on to the members.

Costco reflects good business fundamentals from several different aspects.

Costco’s mission statement is, “To continually provide our members with quality goods and services at the lowest possible prices” (Costco Wholesale Corporation, 2016). According to the Costco 2015 annual report, Costco carries less SKU’s than traditional grocery stores in its market, thus increasing their buying power with higher quantities purchases and creates competition for suppliers trying to get product in their stores. Costco’s business strategy of utilizing its buying power through minimizing the variety of its SKU’s to reduce costs, and using their volume to create supplier competition to place product on their shelves, lowers their cost of goods. Utilizing the warehouse retail model reduces maintenance costs and inventory management, and based on the fact

Quality goods at low prices. Costco has a very efficient model, yet their gross margin never really deviates from the 10.5 range from year to year, suggesting they are passing the savings along to the customer, and what’s more socially responsible than that? Also contributing to the low margin is their better employee wages, paying nearly double according to some reports than their competitors (Ungar, 2013).
Costco also pays their employees good benefits, including healthcare, dental care, vision and retirement (Benefits, 2016). The Costco CSR also includes a focus on providing donations for children and families, generally keeping charitable donations local to their stores rather than nationally (Relations,