Costco's Big Grocery Price Announcement Will Affect Tons Of Shoppers

In a fourth-quarter earnings call (September 2024), top Costco brass announced plans to lower key grocery prices. The call reflected the leading warehouse club's overall strong performance in fiscal year 2024, even amidst recent changes to Costco membership prices and perks. In fact, in part due to Costco's increased fees, members will enjoy additional savings on shopping-basket staples like olive oil, foil, and more.

Even while acknowledging the current rate of inflation is relatively flat, Costco leadership seems attuned to the average consumer's spending fatigue, and will be lowering prices on several Kirkland Signature products in response. In its earnings call, Costco addressed the company's plans to provide added buying power to its budget-conscious membership base. Said Gary Millerchip, executive vice president and chief financial officer, "I think we see the consumer or member ... through our lens. And what I would say is that it's very clear that quality and value have never been more important."

"Our goal is always to be the first to lower prices where we see the opportunities to do so," said Costco Chief Financial Officer Gary Millerchip on Costco's Q4 earnings call on September 26, 2024. In the call, Costco's leadership shared some specific Kirkland Signature price cuts, including:

• 1,000 square feet of aluminum foil, $29.99 from $31.99

• Macadamia nuts, $13.99 from $18.99

• 3 liters of Spanish olive oil, $34.99 from $38.99

• Double-pack of baguette, $4.99 from $5.99

Meanwhile, Costco's $1.50 hot dog special and Costco's cheap rotisserie chicken will remain the same. Millerchip said he sees growth potential and proven results in providing better-priced options on the company's Kirkland Signature label, noting, "Across the fresh departments, we saw high single-digit growth as our continued focus on value is resonating with our members."

A case in point, Millerchip said that lowering the price of Kirkland Signature boneless chicken tenders by 13% resulted in "a 21% lift in pounds sold." He said Costco's value strategy is driven by a desire to grow memberships, as well as increase top-line growth and Kirkland Signature brand penetration — business speak for growing sales by boosting up Costco's store-brand products.

How can Costco afford to cut its prices, let alone better employee wages and continue store growth, as it shared it intended to do in its Q4 earnings call? The answer lies, in part, in the more localized production Costco has been shifting to for certain Kirkland Signature products, as well as its plans to continue to grow membership. As its leadership explained, by producing certain products closer to (or actually in) the countries they'll be sold in, Costco saves money on freight and operations, and those savings can then be passed on to the customer.

Costco's membership fees cover most of its operating costs, and because of this, Costco can take a more aggressive value-providing position. Costco's slight membership price increase in September 2024 — the company's first increase in seven years — will help cover further price cuts in the future (per the plans reviewed in the call). Costco is even able to operate with a profit cap on certain products due to its membership fees, and also due to its absolutely massive scale and bulk-buying power. That buying power only continues to grow, as Costco partners with more providers for its private-label offerings.

If Costco continues to keep margins for Kirkland Signature thin, its competitive pricing for basket staples could keep other big-box and membership retailers competitive, as well. Price cuts instead of price-gouging? That's a deal Costco diehards and non-members can get behind.