Costco’s Kirkland brand is dominating the packaged-goods space, according to Warren Buffett.
In an interview with CNBC on Monday morning, Buffett said that packaged-goods brands were losing ground to retailers.
According to Buffett, the packaged-food icons in Kraft Heinz’s portfolio are struggling to compete with private-label brands at retailers such as Walmart and Costco. These private-label brands have been winning over customers with lower prices as the stigma surrounding generic brands has lifted in recent years.
He said those hoping to go “toe-to-toe” with companies like Walmart, Costco, and Amazon had a “weaker bargaining hand than you did 10 years ago.”
Costco’s Kirkland brand, in particular, is proving to be a dangerous competitor. While Kraft Heinz has spent billions of dollars on advertising over the past century, the company’s sales totaled $26.3 billion last year. Sales of Costco’s Kirkland brand, as Buffett pointed out, grew to $39 billion in 2018.
“Here they are, 100 years plus, tons of advertising, built into people’s habits and everything else,” Buffett said of Kraft Heinz’s brands. “And now, Kirkland, a private-label brand, comes along and with only 750 or so outlets, does 50% more business than all the Kraft Heinz brands.”
Kraft Heinz shares plummeted nearly 27% on Friday following a disappointing earnings report, with Buffett’s Berkshire Hathaway taking a hit of more than $3 billion.
Costco’s Kirkland Signature private-label brand grew by $4 billion in 2018 from 2017, the company reported in December. Last year, Kirkland accounted for nearly one-third of all of Costco’s sales.
“Customers see the brand as a blend of quality and value, and it gives shoppers a unique reason to go to Costco that other retailers can’t match — online or off,” Business Insider’s Dennis Green reports.