Sam’s Club Launches Challenge to Costco’s Wine Business

April 19, 2017, 10:00 AM UTC
A employee walks by a meat cooler in the grocery section of a Sam's Club during a media tour in Bentonville
Photograph by Rick Wilking — Reuters

Sam’s Club wants in on the wine boom.

The Wal-Mart Stores-owned wholesale club chain is launching its first ever house brand wines this year, with its eyes firmly on the bonanza reaped by archrival Costco Wholesale (COST), the largest wine retailer in the country.

Sam’s, which operates some 650 U.S. clubs, recently introduced an $8 Chardonnay from California’s central coast under its Member’s Mark store brand, and this year will start selling a Cabarnet from Napa Valley, a prosecco and a champagne under that label as part of an initiative announced on Wednesday. (Sam’s already sells wine, just not under its own brands.)

The wine, along with a push to add premium, gourmet foods like olive oil from Italy and handcrafted caramels, are part of Sam’s Club’s efforts to upgrade its store brands. Costco’s Kirkland brand, which includes well regarded wines, spans a wide variety of products and generates some 20% in annual sales and is one of the key weapons Costco has used to regularly outperform Sam’s Club’s sales growth for several years.

So the initiatives are a key way for Sam’s Club is to reach a goal it shared with Fortune last year: to reach more affluent customers and raise the average household income of a Sam’s shopper to $100,000 from about $80,000, in large part by overhauling its food. That compares to about $120,000 for Costco, whose stores are heavily concentrated in West Coast urban areas and other, wealthier markets. Sam’s Club locations are often close to Walmart stores in more modest income markets.

Last year, Sam’s Club finished whittling down 21 house brands into one, Member’s Mark after finding simplicity in its branding would spur sales.

A more compelling food offering is key for Sam’s Club: it got about 59% of its $57.4 billion in revenue last year from food and rivals are upping their own grocery game.

“They pay a membership fee so they expect to find unique items,” Chandra Holt, vice president of Sam’s Club’s private brands business told Fortune in an interview, referring to customers.

The new products are the first results of a year-long effort to up its food game by hiring a complement of product developers and quality testers. Last year, Sam’s Club installed regional buying teams to source specialty fine foods and give a store in a given region more say in what it sells, a tactic successfully employed by everyone from Target to Whole Foods as grocers cater to local tastes and consumers adopt the farm-to-table way of eating.

Over the course of 2017, Sam’s Club will be introducing 300 new items, 200 of which are food items, and another 300 next year. The retailer will also be updating another 600 items this year, no small task for a retailer that offers about 2,000 kinds of items under its house brand umbrella. (All in, a Sam’s Club store offers about 6,000 different kinds of items, and about ten times that online.)

For years, Sam’s Club’s focus was to offer house brands that were on a par with brands found at any large retailer. But that hasn’t proven to be enough.

“In today’s environment, a lot of our members want better than that,” Holt said.

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