Dj Cal-Maine Foods Looks Tempting - Barron'S

By Connor Hart

Warehouse clubs such as Costco and BJ's Wholesale Club have long lured fee-paying members with supersized packages of food sold at lower per-unit prices.

Now, amid rising input costs and intensifying competition for shopper loyalty, they are leaning more heavily on private-label brands to undercut competitors and reinforce their value proposition for inflation-weary consumers.

Costco launched its Kirkland Signature brand three decades ago, and the private-label line has since become a linchpin of the retailer's success, accounting for about a third of its $254.5 billion in annual revenue.

Finance chief Gary Millerchip said Thursday that Kirkland continued to grow at a faster pace than overall sales during the company's latest quarter. The products typically offer up to 20% better value than comparable name brands, while providing equal or better quality, he added.

Ahead of the holiday season, Costco launched about 45 new Kirkland products, while also cutting prices on items such as chicken pot pies, slabs of bacon, packs of whipped cream and walnuts. The company is banking on lower prices and new offerings to appeal to consumers increasingly frustrated by higher grocery bills.

Jefferies analysts said in a research note that higher Kirkland penetration, along with supply-chain improvements, helped improve Costco's margins in the quarter.

"As always, our goal is to be the first to lower prices where we see opportunities to do so," Millerchip said on a call with analysts.

Other warehouse clubs and major retailers are responding to similar trends. As consumers cut spending on groceries and increasingly trade down to lower-priced goods, store brands have gained market share, putting pressure on large packaged-food companies that have raised prices in recent years.

BJ's Wholesale Club said last month that it plans to ramp up its private-brand strategy as members gravitate toward promotions and cheaper store-brand alternatives. The retailer introduced private-label products such as tortilla chips, protein shakes and coffee makers during its latest quarter, which it said cost about 30% less than comparable name brands.

"Owned-brand products also deliver higher penny profit for us, which we can use to invest back into the member experience, further propelling the flywheel that drives our business," Chief Executive Bob Eddy said.

Walmart is boosting investment in its in-house brands, including last year's launch of Bettergoods, a food line with trendy flavors and more natural ingredients. Its warehouse banner, Sam's Club, also markets its own private-label brand, Member's Mark.

And Amazon.com earlier this year debuted a new private label food brand called Amazon Grocery, combining products currently sold under the e-commerce company's Amazon Fresh and Happy Belly brands.

Write to Connor Hart at connor.hart@wsj.com

(14:44 GMT) Sysco Price Target Cut to $80.00/Share From $81.00 by Piper Sandler