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Inside Costco’s strategy to combat rising food prices and its impact on consumers

In a recent testimony to a House of Commons committee scrutinizing food prices, Costco’s Pierre Riel discussed the retail giant’s efforts to alleviate the burden of increasing costs on consumers, a Canadian Press report reads.

Riel, COO of Costco Wholesale Corp.’s international and Canadian division, says the company slashed prices on hundreds of items in 2023.

“We have mitigated price increases and accelerated price decreases as input and commodity prices drop,” Riel said.

A cornerstone of Costco’s strategy lies in its investment in the Kirkland Signature private-label brand. Riel says that Costco has expanded its Kirkland product lineup by 12 per cent over the past four years. According to Riel, the products offer significant savings, at least 20 per cent, compared to nationally branded items.

Hourly wage increases, price reductions among key focus points

Moreover, Riel says Costco is focused on supporting Canadian suppliers, with nearly two-thirds of its Kirkland products manufactured domestically. Riel also shed light on Costco’s commitment to its workforce, citing the recent rise in starting hourly wage to $18.50 and an average hourly wage of $30.20.

Riel also emphasized the differences between Costco and its competition. Like the other grocery stores, suppliers have approached Costco with demands for price increases. But he added Costco does not engage in freeze price requests for a few months around Christmas.

Riel said the business constantly searches for methods to reduce costs and takes all reasonable steps to avert price rises. He also claimed the company can provide the best possible pricing because of its membership strategy.

“Our strategy has worked because we offer value,” Riel said.

Grocers, including Costco, have recently faced scrutiny regarding their profits amidst soaring food prices. Additionally, they have been pressed to endorse an industry-led grocery code of conduct to foster fairness in the sector. While Costco remains open to signing the code, Riel said there is a need for clarity on its operational mechanics and potential impact on food prices.

Riel’s remarks coincide with Costco’s latest announcement of sales growth, which included a 6.6 per cent gain in comparable sales and a 6.2 per cent increase in overall sales, with a 1.5 per cent increase in sales in the U.S. With e-commerce sales up 21 per cent, the month’s total net sales of $22.08 billion represented a 4.5 per cent rise over the same period last year. It was also reported that CFO Richard Galanti would retire in March 2024, and Gary Millerchip would take over as CFO.

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