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Canadian Grocer: Digging deep into Costco抯 buying process

Monday, November 09, 2015 > 10:13:14
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(Canadian Grocer)

Senior food VP reveals what goes into warehouse club's procurement

In the November issue of Canadian Grocer, managing editor Alicia Androich speaks with Pietro Nenci, Costco Wholesale Canada’s general merchandising manager, VP Eastern Canada, food and sundries.

Nenci is integral to Ottawa-based Costco’s buying process. He helps make the final call on item selection for the 56 Costco warehouses from Windsor to St. John’s, N.L., on a wide array of categories covering candy and cleaning products to freezer and specialty deli.

He also oversees corporate food in Canada, which consists of national food agreements and Costco’s Kirkland Signature food and sundries products.

Here are some additional questions from their in-depth conversation about Nenci’s role, the buying process at Costco and how it sources suppliers:

Part of your dual role at Costo focuses on procurement of food and sundries for Eastern Canada. What is the corporate side of your role?

It’s everything that has to be done with private label, so Kirkland Signature, and bringing in those items. [As with my responsibilities with food procurement for Eastern Canada], we work on an item basis. We’re not in every category in private label. An item has to make sense. We do want to show value in price and quality versus the brand leader.

If you have a good private label program, it creates loyalty. It creates loyalty to the brand, to Costco, and definitely member value.

Beyond looking at food trends and getting information about what is selling well at other Costcos internationally, how else do you make food buying decisions for your Eastern Canada stores?

We always look at the commodity. There are various commodity reports that we have access to. When we have to make a decision on the canola crop in west Canada, when the buyer comes in and gives us their position on a crop or on the commodity, we will refer to those charts to make sure our buying decisions are based on data versus opinion. So we try to put some data science behind some of our commodity purchases because a bad purchase in commodities could be difficult for a retailer.

Do you use focus groups to help figure out which foods your members want on Costco’s shelves?

Nope. Never. We do our own testing. A lot of our employees are our members, and every day we use our test kitchen and we try [products we’re considering buying] and we comment. It has to satisfy us. We have the newer generation and we have some people who are more mature, so we have a good representation of our member base within our own employees. We use that a lot.

What are some of the ways your team of buyers meets new vendors?

We do road shows. [That’s when] vendors come into our clubs and have a window of 13 days, and they bring in various SKUs that we select with them. And they will offer various products of their company to our members. It could be coffee, it could be perogies, it could be sauces. It’s mostly smaller to mid-size companies, and they do these road shows with demos with their staff, and they explain to our members what their company is all about. The idea is to make it fun to come to brick and mortar.

And for us, it’s also a test ground. If we see if this coffee sells extremely well, guess what? The objective is to bring it in for all our clubs across Eastern Canada.

How else do you establish relationships with new suppliers?

Local fairs are also important. Often we send our buyers to one of our locations—for example, St. John’s, Newfoundland—and the buyer stays there for three days and meets local suppliers. The vendors call, just a cold call on the phone, and we meet the supplier.

And as the company has grown, we are fortunate to have a database of our vendors and items around the Costco world, so if we notice in the U.S. and southeast something’s doing extremely well, and it makes sense with what we know our member wants today, we’ll call that vendor and say, “Want to come up in Canada and meet with us?”

We often call vendors and say, “We would like to meet you.” And they’re all surprised. Recently, one of my buyers came to see me and said, “Did you see that show last night on TV? There was a vendor talking to this grocery show in Quebec about a fish product made in Gaspésie.” And I said, “That’s interesting. Give them a call.” He did and we actually sampled the product since.

How do you ensure the food products you choose to stock are up to your standards?

A buyer, when he meets a vendor, has a protocol to go through. Obviously we would like to visit the factory—that’s mandatory. We would like to see the audits or call our own audits of the factory; it could be a social audit, it could be an animal welfare audit, it could be the plant’s food safety audit.

You go through that process to make sure that they’re able to reproduce that in a safe, fair, and constant way what they present to you in a vendor meeting room. So there is a protocol with our buying team to make sure that when the product hits our buildings that all the balances and checks have been verified by our various groups here.

How do you decide how long to let a product stay on shelves?

It’s case by case. If you take a basic core item, the sales have to grow year after year. That would be our benchmark. [If an item is driving our sales down], we have to challenge that item. We’ll meet with the supplier and try to make it better. We try to improve the value, so we look at the sizing. Is it the right size? Do we have the right flavours? Is it the right format? Should we go organics instead of conventional? So there’s a thought process before we say that item is going out. If we chose the wrong flavour, and [the supplier] insists unsweetened is better than vanilla, we’ll try the unsweetened. And often, they’re right.

What’s the profile of the average Canadian Costco shopper today?

Today is the boomers, so it’s 45 plus. They have a family, they own their home. The eduction and income is higher than the average. They entertain a lot.

What’s the average basket spend?

That varies by province. The basket is slightly higher in the west than in the east. I would say we’re in the $150s on average in Canada now.


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