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WAREHOUSE CLUB FOCUS For 20 years, your best source for information about the clubs.

Bakery, Deli, Fresh Food and Produce Analysis One of the best ways to understand club buying and merchandising strategies is to analyze the departments and categories that are stocked at BJ’s, Costco and Sam’s Club. WCF divides the entire list of club departments and categories into four groups. Each group is analyzed approximately every 12 months. Those groups include: general merchandise “a” (automotive, home goods, majors and sundries), general merchandise “b” (softlines, health and beauty aids, sporting goods and office), dry grocery and candy and perishables (cooler, freezer, deli and fresh foods). The perishable group analysis is divided into two issues of WCF. In this current issue, the bakery, deli (see picture on the right from Costco of a package of Gilmar octopus tentacles for $16.99 per pound), fresh food (meat, chicken, seafood and in-house prepared) and produce departments are analyzed. The July 29, 2016 issue of WCF featured an analysis of the cooler and freezer departments. This article is divided into the following six sections: sales estimates background, item data background, bakery analysis, deli analysis, fresh food analysis and produce analysis.

Sales Estimates Background The category sales information in this article is calculated using a combination of objective and subjective data. The data includes: annual worldwide company sales, category SKUs and category penetration. This background data enables WCF to estimate the category sales for each club. Annual Worldwide Company Sales – Costco reports worldwide sales monthly. Sam’s reports United States sales quarterly and WCF estimates its international business. Since it is a private company, WCF estimates BJ’s monthly sales based on its history and WCF research. Each club’s sales data is converted to an annual worldwide figure for an “apples to apples” comparison. Category SKUs – On an annual basis in January, WCF reports on the current SKU counts (at the time) in every category at each of the three clubs. In addition, during these category and department analyses throughout the year, the SKUs within each category are counted at each club. The category numbers are always compared to make sure they are “in line”, otherwise, the current data is reconfirmed. Category Penetration – WCF has been estimating a category’s percentage of sales (penetration) since 1997. There are three important points to understand about these figures. First, the clubs do not publicly share detailed category penetration information. Second, Costco and Sam’s Club report overall department penetration figures in their annual reports and BJ’s did this when it was a public company. WCF “ties” its individual category penetration estimates to the reported figures for Costco and Sam’s Club making sure that, in a general sense, its estimates for these two operators are based on objective data. Third, our estimates are constantly updated based on vendor feedback and WCF research. Category Sales – The chart above provides the 2015 calendar year worldwide category sales estimates (in millions) for the bakery, deli, fresh food and produce categories. The percentage figure to the right of each category’s sales total is the penetration of overall calendar year sales. The dollar figure to the right of each category’s SKU count represents the average sales per item per week per club. The figures directly below each club name represent the total 2015 calendar year worldwide sales for each company as well as the average sales per item per week per club. The chart also includes the total four category data for each club from 2008 and 2015.

December 16, 2016 Volume 20, Issue 467

Deli Analysis—4. Costco Q1 Sales—7. Sam’s Q3 Sales—9.

$166 $737 $287$/Week/Club $/Week/Club $/Week/Club

Bakery $285 2.0% 232 $112 $3,137 2.7% 76 $1,137 $1,913 2.4% 166 $259 $5,335 2.6%

Deli $361 2.6% 276 $119 $3,137 2.7% 125 $691 $1,678 2.1% 210 $180 $5,176 2.5%

Fresh Food $460 3.3% 122 $344 $4,316 3.8% 104 $1,143 $2,540 3.2% 83 $688 $7,316 3.5%

Produce $615 4.4% 170 $330 $5,484 4.8% 78 $1,937 $2,901 3.7% 96 $680 $9,000 4.4%

2016 Total $1,721 12.3% 800 $196 $16,074 14.0% 383 $1,156 $9,032 11.5% 555 $366 $26,827 13.0%2015 Total $1,563 11.3% 801 $181 $15,097 13.4% 403 $1,074 $7,343 9.4% 466 $361 $24,003 11.7%2008 Total $879 9.0% 602 $157 $8,944 12.0% 330 $966 $5,242 9.1% 374 $375 $15,065 10.7%

SKU SKU SKU$78,404

Calendar 2015 - Worldwide SalesTotal

WCF Research

$206,862Category

BJ's

$13,978

Costco

$114,480

Sam's Club

Costco—Gilmar Octopus Tentacles

December 16, 2016 2 FEATURE

For example, the deli department at Costco generated 2015 annual sales of $3.14 billion which represented 2.7% of the company’s overall sales of $114.48 billion. There are 125 deli SKUs at Costco. The average deli item generated weekly sales per club of $691. For a comparison, an average item at Costco generated sales of $737 per week per club.

Item Data Background The product data and pictures for this analysis were gathered in December, 2016 from BJ’s, Costco and Sam’s Club (see picture below from Sam’s Club of a package of two 5.5-ounce Cedar’s snack kits with salame, hummus, provolone cheese and taralli for $11.78) locat ions in New Hampshire and Massachusetts. The club specific charts below (BJ’s), on page three (Costco) and on page four (Sam’s Club) include four years of SKU data (2000, 2007, 2015 and 2016), average retail price data and targeted end users. For the targeted end user

data, WCF determined whether an item, based on its package size and product type, was geared more towards a business or consumer member.

When determining if an item can be used by a business member, WCF considers whether one of the following business member types would purchase the item for its operation: restaurant, vending operator, gasoline station, day care provider, convenience store, professional, hotel operator, hair salon or caterer. If a business member would potentially purchase an item, it was counted as a wholesale SKU.

Bakery Analysis

The five bakery sub-categories include: direct store delivery (DSD) bread, DSD pastry, customized cakes, in-house bakery and in-house pastry. BJ’s 232 bakery SKUs generated annual sales of $285 million with each item averaging $112 per week per club. Costco’s 76 bakery items generated annual sales of $3.14 billion with each item averaging $1,137 per

week per club. Sam’s 166 bakery products generated annual sales of $1.91 billion with each item averaging $259 per week per club. The following are observations from the bakery department: Pepperidge Farm – An assortment of Pepperidge Farm bread SKUs were observed at BJ’s (ten items) and Costco (two products). Of BJ’s ten SKUs, seven were single loaf items and three were double loaf SKUs. Both of Costco’s Pepperidge

Farm bread item packages included two loaves. Some of BJ’s items included: a 16-ounce loaf of light seven-grain bread for $4.29, a 16-ounce loaf of light white bread for $4.29 and a 24-ounce loaf of oatmeal for $3.99. BJ’s and Costco stocked the same item in a different sized package. BJ’s stocked a 24-ounce loaf of hearty white for $3.99 and Costco stocked a package of two 24-ounce loaves of hearty white for $4.59.

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We are a Club Broker seeking a creative and enthusiastic sales executive to be responsible for our Costco Midwest and East Coast customers. The position calls for an associate that is able to manage multiple product lines with our represented principals; all of whom are proven, agile, fast-moving, long-term suppliers with existing business. We offer a base salary plus a “sky’s the limit” compensation plan, coupled with a close family-style company culture, entrepreneurial spirit, with an incredible support staff in place. Position preferably working in-home in Sterling, VA, Duluth, GA, or Chicago, IL. Candidate Skills, Qualifications, and Areas of Responsibility would include: Travel and call on the Costco Northeast, Southeast, Midwest, and Texas buying offices. Product lines are in departments 12, 13, 17, 18 and 19 (and more in the future). Existing buyer relationship in those departments is critical. Conduct and manage sales presentations to multiple buyers in multiple departments. Experience with product development specific to membership warehouse clubs. Designing, developing, and implementing new programs and items in line with trends and

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2000 2007 2015 2016 2000 2007 2015 2016 2000 2007 2015 2016 2000 2007 2015 2016DSD - Bread 38 61 61 74 $3 $3 $3 $4 14 26 14 9 24 35 47 65DSD - Pastry 61 36 47 58 $3 $5 $8 $7 4 14 11 10 57 22 36 48

Customized Cakes n/a 28 23 29 n/a $12 $13 $13 n/a 9 3 n/a n/a 19 20 29In House - Bread 14 19 35 37 $3 $3 $4 $4 7 13 8 11 7 6 27 26In House - Pastry 61 49 32 34 $7 $6 $7 $7 27 29 2 2 34 20 30 32

BAKERY Total 174 193 198 232 $4 $5 $6 $6 52 91 38 32 122 102 160 200Cheese 62 85 85 84 $5 $7 $8 $8 18 20 3 5 44 65 82 79

Dips, Appetizer, Dessert, Salad, Sides 4 20 52 47 $4 $7 $6 $7 1 4 2 n/a 3 16 50 47Meat, Prepared, Chicken 72 86 143 116 $8 $9 $10 $11 19 26 21 15 53 60 122 101

Pasta, Sauce n/a 7 13 13 n/a $9 $9 $10 n/a n/a n/a n/a n/a 7 13 13Seafood 5 n/a 11 6 $6 n/a $10 $9 2 n/a n/a n/a 3 n/a 11 6

Soup n/a 4 12 10 n/a $8 $9 $11 n/a n/a n/a n/a n/a 4 12 10

DELI Total 143 202 316 276 $6 $8 $9 $9 40 50 26 20 103 152 290 256Chicken 14 33 28 14 $12 $10 $13 $14 8 17 10 4 6 16 18 10

Meat, Turkey 67 70 81 86 $14 $16 $23 $19 22 34 23 14 45 36 58 72Prepared 19 22 13 6 $7 $9 $9 $10 3 4 n/a n/a 16 18 13 6Seafood 16 31 17 16 $8 $9 $14 $13 2 6 2 2 14 25 15 14

FRESH FOOD Total 116 156 139 122 $12 $13 $19 $17 35 61 35 20 81 95 104 102Fruit 19 36 61 71 $4 $6 $6 $6 9 20 10 10 10 16 51 61

Vegetables 47 84 87 99 $4 $4 $4 $4 21 38 14 25 26 46 73 74

PRODUCE Total 66 120 148 170 $4 $4 $5 $5 30 58 24 35 36 62 124 135499 671 801 800 $7 $8 $9 $9 157 260 123 107 342 411 678 693

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BJ's Wholesale SKU Average RetailSKU

Wholesale Retail

Sam’s—Cedar’s Snack Kits

All contents © 2016, HHC Publishing, Inc. All rights reserved. HHC Publishing, Inc. strictly PROHIBITS without its express written permission ALL copying, faxing and emailing of Warehouse Club Focus (WCF) to persons or companies who have not paid the annual subscription fee. WCF reserves the right to TERMINATE any subscription to those individuals or companies distributing WCF to non-subscribing individuals or companies. In this regard, HHC Publishing, Inc. may use software, Internet tools and other available means to track and monitor subscribers’ use of WCF. If you have received this issue of WCF without paying the annual subscription fee, the distributor is in violation of copyright and intellectual property laws. To sign up for an annual subscription, call us at 617-770-0102 or visit www.hhcpublishing.com. If your company is interested in learning about how to provide the information found in WCF throughout your organization call us at 617-770-0102 and ask about our corporate subscription program.

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December 16, 2016 3 FEATURE

Party and Catering Trays – Sam’s Club stocked four Member’s Mark private label party or catering tray SKUs: a 70-ounce breakfast tray with mini muffins, mini cinnamon rolls and danishes for $19.98 (see picture on the left), a 53-ounce

tray of Christmas-themed iced sugar cookies (yellow stars, green Christmas trees and red stockings) for $20.00, a 95-ounce cookie tray (oatmeal raisin, mini candy, mini chocolate chip and white chocolate macadamia nut) for $20.98 and an 84-ounce holiday cookie tray for $17.98. Pastry – All three clubs continue to rotate an assortment of pastry items from both outside vendors and under their respective private label brands. Costco stocked: a 40-ounce package of assorted spritz all butter cookies from Chris’s Cookies for $9.99, a 48-ounce banana nut loaf cake from Jessica’s for $9.99, a 50-ounce My Grandma’s cinnamon walnut coffee cake for $14.99 and a container of thirty-two 0.75-ounce vanilla cookies with a chocolate hazelnut spread on top of each from Newberry Bakery for $7.99. Sam’s Club stocked: a package of eight 1.48-ounce chocolate whoopee pies with

vanilla cream in the middle from Chococoa Baking for $7.98, a container of twelve 2-ounce pieces of Member’s Mark cornbread for $3.98, a container of forty-eight 1-ounce Member’s Mark mini brownie bites for $6.98, a container of forty

0.85-ounce Member’s Mark mini muffins (20 blueberry and 20 chocolate chip) for $6.98 and a container of sixteen 1.5-ounce Daily Che f p r i va te l ab e l cinnamon crunch breakfast bars for $5.98. BJ’s pastry selection included: a box of eight 1.94-ounce chocolate frosted donuts from Entenmann’s for $3.49, an 11.5-ounce Entenmann’s loaf cake for $2.99, a 48-ounce raspberry swirl

cheesecake from Junior’s for $16.99 (merchandised in the customized cake cooler), a package of nine 2.36-ounce Little Debbie honey buns for $3.99 and a 26.75-ounce container of cannoli chips and ricotta cream dip from Golden Cannoli for $10.99 (merchandised in the customized cake cooler).

Wholesale – BJ’s stocked a number of labeled-for-resale pastry items that included four Entenmann’s Little Bite mini muffin SKUs (see pallet display on the next page) and four Entenmann’s cake and pie items. Some of those products included: a case of twelve 4-ounce Entenmann’s apple pies for $8.29, a case of nine 3.5-ounce Entenmann’s cheese danishes for $8.29, a case of nine 2.75-ounce Entenmann’s loaf cakes for $8.29, a case of twenty Little Bite mini blueberry muffins for $9.99 and a case of twenty Little Bite mini chocolate chip muffins for $8.29. Organic – BJ’s stocked three organic bread items from Eureka: a 27-ounce loaf of 12-grain bread for $4.59, a 27-ounce loaf of sweet wheat bread for $4.59 and a 27-ounce loaf of eight-grain bread for $4.59.

2000 2007 2015 2016 2000 2007 2015 2016 2000 2007 2015 2016 2000 2007 2015 2016DSD - Bread 29 20 22 24 $3 $4 $5 $5 15 15 10 9 14 5 12 15DSD - Pastry 13 7 11 10 $5 $6 $7 $9 7 6 2 2 6 1 9 8

Customized Cakes n/a 3 3 2 n/a $17 $19 $19 n/a n/a n/a n/a n/a 3 3 2In House - Bread 5 3 13 14 $4 $5 $6 $6 2 3 8 4 3 n/a 5 10In House - Pastry 23 20 19 26 $7 $8 $9 $10 18 18 11 7 5 2 8 19

BAKERY Total 70 53 68 76 $5 $7 $7 $8 42 42 31 22 28 11 37 54Cheese 48 49 51 47 $7 $9 $10 $9 19 29 20 12 29 20 31 35

Dips, Appetizer, Dessert, Salad, Sides 21 26 33 30 $6 $8 $8 $9 2 10 7 3 19 16 26 27Meat, Prepared, Chicken 29 39 43 32 $10 $10 $12 $13 17 15 8 2 12 24 35 30

Pasta, Sauce 12 8 7 4 $8 $9 $10 $9 n/a 2 n/a n/a 12 6 7 4Seafood 11 14 9 4 $8 $11 $13 $15 4 4 3 1 7 10 6 3

Soup 2 4 2 8 $8 $9 $11 $10 n/a n/a n/a n/a 2 4 2 8

DELI Total 123 140 145 125 $8 $9 $10 $10 42 60 38 18 81 80 107 107Chicken 7 8 16 13 $8 $14 $17 $17 7 7 8 3 n/a 1 8 10

Meat, Turkey 33 34 50 53 $16 $18 $36 $43 25 29 25 29 8 5 25 24Prepared 13 28 26 27 $10 $13 $15 $14 2 3 3 2 11 25 23 25Seafood 7 7 12 11 $13 $15 $26 $21 7 3 4 2 n/a 4 8 9

FRESH FOOD Total 60 77 104 104 $13 $15 $26 $30 41 42 40 36 19 35 64 68Fruit 17 35 46 45 $5 $7 $7 $7 10 28 16 13 7 7 30 32

Vegetables 27 35 40 33 $5 $6 $6 $6 24 29 17 11 3 6 23 22

PRODUCE Total 44 70 86 78 $5 $6 $6 $7 34 57 33 24 10 13 53 54297 340 403 383 $8 $10 $13 $14 159 201 142 100 138 139 261 283

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Costco SKU Average RetailSKU

Wholesale Retail

Sam’s—Breakfast Tray

4 FEATURE December 16, 2016

Deli Analysis The six deli sub-categories include: cheese, dips/appetizers/deserts/salad, meat and prepared food, pasta and sauces, seafood and soup. BJ’s 276 deli SKUs generated annual sales of $361 million with each item averaging $119 per week per club. Costco’s 125 deli items generated annual sales of $3.14 billion with each item averaging $691 per week per club. Sam’s 210 deli products generated annual sales of $1.68 billion with each item averaging $180 per week per club. The following are observations from the deli department: Overall Selection – The deli selection decreased at BJ’s from 316 items in 2015 to 276 products in 2016 and at Costco from 145 SKUs in 2015 to 125 items in 2016. However, the deli selection at Sam’s Club increased from 161 products in 2015 to 210 items in 2016. The increase at Sam’s Club was evident in four categories: soup (an increase of five products to a total of nine in 2016), cheese (an increase of 12 items to a total of 93 in 2016), dips, appetizers, desserts, salads and side dishes (an increase of 27 SKUs to a

total of 40 in 2016) and meat, prepared and chicken (an increase of ten products to a total of 60 in 2016). Soup – All three clubs stocked a similar number of soup items: BJ’s stocked ten, Sam’s Club stocked nine and Costco stocked eight (up from two in 2015). BJ’s assortment included six items from Panera and three from Legal Seafood.

Sam’s selection included four items from Panera, two SKUs from Member’s Mark and two items from Harry’s. Costco’s selection included two SKUs from Legal Seafood, two products from Blount and two SKUs under its Kirkland Signature private label. Sam’s soup selection included: a package of two 24-ounce containers of Harry’s chicken noodle for $9.98, a package of two 24-ounce containers of Legal

Seafood New England clam chowder for $12.98, a package of two 32-ounce containers of Member’s Mark organic minestrone for $10.98, a package of two 24-ounce containers of Panera chicken tortilla for $11.98 and a package of two 24-ounce containers of Panera broccoli and cheddar for $11.98. Costco’s soup assortment included: a package of two 24-ounce containers of Blount organic chicken noodle for $10.99, a package of two 32-ounce containers of Cedarlane organic vegetable and barley for $9.69, a package of two 30-ounce containers of Harry’s organic tomato basil for $9.99, a package of two 20-ounce containers of Kirkland Signature lobster bisque for $10.79 and a package of two 20-ounce containers of Legal Seafood crab and corn chowder for $10.49.

BJ’s soup selection included: a package of two 20-ounce containers of Legal Seafood lobster bisque for $11.99, a package of two 20-ounce containers of Legal Seafood shrimp and corn chowder for $11.99, a package of two 24-ounce containers of Panera baked potato for $11.99, a package of two 24-ounce containers of Panera creamy tomato for $10.99 and a package of two 24-ounce containers of Panera Tuscan chicken for $11.99. Prepared Food and Side Dishes – The assortment of prepared food and side dishes at Sam’s Club is larger than in past analyses. Sam’s selection included: a package of two 32-ounce containers of Pineland Farms mashed potatoes for $6.98, a 32-ounce container of Simple Eats organic macaroni and cheese for $13.48 (see picture on the left) and a 40-ounce container of Simple Eats organic mashed sweet potatoes (price not displayed).

2000 2007 2015 2016 2000 2007 2015 2016 2000 2007 2015 2016 2000 2007 2015DSD - Bread 27 28 43 50 $3 $3 $4 $4 17 19 15 12 10 9 28DSD - Pastry 11 27 41 43 $8 $6 $7 $8 7 18 24 18 4 9 17

Customized Cakes n/a 12 12 14 n/a $13 $21 $23 n/a n/a n/a n/a n/a 12 12In House - Bread 8 11 17 22 $3 $4 $4 $4 8 10 13 12 n/a 1 4In House - Pastry 27 21 23 37 $6 $5 $7 $9 15 18 12 7 12 3 11

BAKERY Total 73 99 136 166 $5 $6 $7 $8 47 65 64 49 26 34 72Cheese 29 85 81 93 $6 $9 $10 $9 22 40 28 25 7 45 53

Dips, Appetizer, Dessert, Salad, Sides 9 21 13 40 $4 $9 $8 $9 1 12 1 n/a 8 9 12Meat, Prepared, Chicken 54 57 50 60 $9 $11 $13 $14 30 37 13 8 24 20 37

Pasta, Sauce 10 5 9 8 $7 $10 $10 $9 n/a n/a n/a n/a 10 5 9Seafood n/a n/a 4 n/a n/a n/a $14 n/a n/a n/a n/a n/a n/a n/a 4

Soup n/a 3 4 9 n/a $9 $12 $11 n/a n/a n/a n/a n/a 3 4

DELI Total 102 171 161 210 $8 $9 $11 $10 53 89 42 33 49 82 119Chicken 5 12 13 11 $9 $10 $13 $11 4 12 8 9 1 n/a 5

Meat, Turkey 35 43 38 43 $24 $20 $28 $21 30 36 21 18 5 7 17Prepared n/a 13 19 14 n/a $11 $11 $13 n/a n/a n/a n/a n/a 13 19Seafood 9 21 11 15 $9 $12 $18 $17 2 12 5 6 7 9 6

FRESH FOOD Total 49 89 81 83 $20 $15 $20 $18 36 60 34 33 13 29 47Fruit 22 35 41 43 $4 $6 $6 $7 13 30 11 7 9 5 30

Vegetables 43 46 47 53 $4 $6 $6 $5 33 37 21 17 10 9 26

PRODUCE Total 65 81 88 96 $4 $6 $6 $6 46 67 32 24 19 14 56289 440 466 555 $8 $9 $10 $10 182 281 172 139 107 159 294

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Sam's Club SKU Average Retail SKUWholesale Retail

BJ’s—Little Bites Muffins

Sam’s—Simple Eats Macaroni & Cheese

5 FEATURE

Kosher – Costco stocked 14 Kosher deli items. Some of those products included: a 25-ounce bottle of Blue Hill Bay herring in wine sauce for $4.99, a 32-ounce container of Blue Hill Bay whitefish salad for $11.59, a 48-ounce package of Natural & Kosher sliced American cheese for $14.89, a 32-ounce package of Natural & Kosher shredded mozzarella cheese for $9.39, a 20-ounce package of NY Deli sliced corned beef for $10.99, a 20-ounce package of NY Deli sliced pastrami for $10.99 and a 32-ounce package of Old Fashioned Kitchen potato pancakes for $8.69. Hummus– All three club stocked a large selection of hummus dips. BJ’s assortment included four items from Sabra and five items under its Wellesley Farms private label brand. The selection included: a 30-ounce container of Wellesley Farms garlic hummus for $4.99, a 30-ounce container of Wellesley Farms roasted red pepper hummus for $4.99, a package of twelve 2-ounce cups of Wellesley Farms hummus (price not displayed) and a 30-ounce container of Sabra hummus for $5.79. Costco stocked: a 32-ounce container of Hannah organic hummus for $5.99, a package of twenty 2.4-ounce cups of Kirkland Signature organic hummus for $6.49 (see picture below) and a 30-ounce container of Sabra hummus for $5.79. Sam’s Club stocked: a package of six 3.5-ounce snack kits of Cedar’s hummus and pita chips for $8.22, a 17-ounce container of brownie batter dessert hummus from Delighted By for $5.88, a 32-ounce container of Pita Pal hummus for $5.48 and a 32-ounce container of Pita Pal red pepper hummus for $5.48.

Cheese – The snack size and sliced cheese selection at each club included: two 8-ounce packages of Applegate natural sliced American cheese for $7.49 (BJ’s), a 24-ounce package of BelGioioso sliced provolone for $7.99 (BJ’s), a package of twenty-four 0.75-ounce colby jack snack size cheese from Cabot for $7.99 (BJ’s), a 24-ounce package of Dofino sliced Havarti for $7.99 (BJ’s), a package of twenty-four 0.75-ounce snack size cheese from Dofino (12 each of Havarti and gouda) for $8.49 (BJ’s), a 32-ounce container of Adams Reserve sliced provolone for $7.49 (Costco), two 16-ounce packages of BelGioioso sliced mozzarella for $7.69 (Costco), a package of twenty-four 1-ounce snack size mozzarella cheese from BelGioioso for $8.69 (Costco), a 32-ounce variety package of sliced cheese (swiss, colby jack, cheddar and Monterey jack) from Finlandia for $7.99 (Costco) and a 1.67-pounce package of Member’s Mark sliced baby swiss cheese for $11.98 (Sam’s Club). Unique Items – The following are some of the unique deli items observed at each club. BJ’s stocked: three 8-ounce packages of Applegate natural turkey bacon for $11.99, a package of four 2.76-ounce Hillshire snack kits (genoa salami, white cheddar cheese and toasted rounds) for $8.99, three 8-ounce packages of Johnsonville turkey sausage patties for $8.99, a package of four 10-ounce cups of Panera macaroni and cheese for $12.99 and a package of two 12-ounce containers of Wellesley Farms organic spinach tortellini for $9.99.

Costco stocked: a 38.8-ounce package of Fine Choice Foods vegetable spring rolls with plum sauce packets for $7.99, a package of two 18-ounce containers of Pasta Prima organic spinach and cheese ravioli for $9.99, a 46.6-ounce bag of Pulmuone Korean noodles with black bean sauce for $8.79 and a package of three 16-ounce containers of Wholly Guacamole organic guacamole for $11.99.

Sam’s Club stocked: a 32-ounce Italian sandwich kit with sliced ham, sliced pepperoni and sliced genoa salami from Carando for $10.98, a 22-ounce tray of mozzarella cheese wrapped in either pepperoni, prosciutto or sopressata from Formaggio for $13.98 (see picture on the next page), two 17.6-ounce packages of Rana green and yellow Italian fettuccine for $6.98 and a 24-ounce container of La Terra Fina vanilla bean cheesecake dip for $6.98.

December 16, 2016

Costco—Kirkland Signature Organic Hummus

6 FEATURE December 16, 2016

Fresh Food Analysis

The four fresh food sub-categories include: fresh chicken, fresh meat and turkey, in-house prepared and fresh seafood. BJ’s 122 fresh food items generated annual sales of $460 million with each item averaging $344 per week per club, Costco’s 104 fresh food items generated annual sales of $4.32 billion with each item averaging $1,143 per week per club and Sam’s 83 fresh food items generated annual sales of $2.54 billion with each item averaging $688 per week per club. PRE Brands – BJ’s stocked five PRE Brand meat items from animals on a grass only diet with no added hormones and no added antibiotics. The selection included: a 48-ounce package of beef chuck roast for $23.99, a 20-

ounce package of beef ribeye steak for $21.99, a 20-ounce package of beef strip steak for $20.99, a 48-ounce package of 85% lean ground beef for $18.99 (see picture below) and a 48-ounce package of 90% lean ground beef for $20.99.

Produce Analysis

The two produce sub-categories include: fruit and vegetables. BJ’s 170 items generated annual sales of $615 million with each item averaging $330 per week per club, Costco’s 78 items generated annual sales of $5.48 billion with each item averaging $1,937 per week per club and Sam’s 96 items generated annual sales of $2.90 billion with each item

averaging $680 per week per club. Prepared Salads – All three clubs stocked Taylor Farms prepared salad kits: BJ’s and Sam’s Club stocked two items and Costco stocked three items. The assortment included: a 23.58-ounce Asian chopped salad for $4.79 at Costco and $4.79 at BJ’s, a 12.97-ounce Asian chopped salad for $2.18 at Sam’s Club, a 23.3-ounce southwest chopped salad for $4.79 at BJ’s, a 12.03-ounce Greek chopped salad for $2.18 at Sam’s Club, a 16.95-ounce Caesar salad kit for $3.49 at Costco and a 28-ounce sweet kale salad for $4.99 at Costco.

Sam’s—Formaggio Mozzarella Artisan Wraps

BJ’s—PRE 85% Ground Beef

Organic Vegetables – Each club has focused on incorporating a larger number of organic vegetables in their assortments. BJ’s stocked: a 48-ounce bag of organic russet potatoes from Wellesley Farms for $2.79, a 16-ounce container of Wellesley Farms organic baby spinach for $4.99 and a 32-ounce container of Sunset organic tomatoes on the vine for $5.99. Sam’s Club stocked: a five-pound bag of organic carrots from Bunny-Luv for $3.28, a 16-ounce container of organic kale from Pure for $4.48 and a 32-ounce container of organic grape tomatoes from Sunset for $6.98. Costco stocked: a ten-pound bag of organic carrots from Bunny-Luv for $6.99, a 16-ounce container of Earthbound Farm organic spinach for $4.49, a 24-ounce tray of organic baby bella mushrooms from Giorgio for $4.99, a 24-ounce container of Nature’s Green organic kale for $4.79, a ten-pound bag of Nature’s Pride organic sweet potatoes for $12.99 and a 24-ounce container of Wholesome Garden organic spring mix for $3.49. Seedless Grapes – Each club stocked a green seedless grape and a red seedless grape SKU. BJ’s stocked a three-pound container of green seedless grapes from Welch’s for $6.99 or $2.33 per pound and a three-pound container of red seedless grapes from Welch’s for $6.49 or $2.16 per pound. Sam’s Club stocked a three-pound container of green seedless grapes from Terra Sun for $6.49 or $2.16 per pound and a three-pound container of red seedless grapes from Sun World for $6.98 or $2.33 per pound. Costco stocked larger packages of each item and a lower per-pound price: a five-pound container of green seedless grapes from Verfruit for $7.49 or $1.50 per pound and a four pound container of red seedless grapes from Verfruit for $8.49 or $2.12 per pound.

7 FEATURE December 16, 2016

FINANCIAL

Costco Wholesale

Costco Reports First Quarter Sales and Operating Results Marketwired – December 7, 2016

Costco reported financial results for its first quarter ending November 20, 2016 via a press release and conference call with financial analysts. The following is a summary of that information: Sales and Earnings – Costco reported first quarter merchandise sales increased 3.2% from $26.63 billion last year to $27.47 billion this year. Membership revenues increased 5.9% to $630 million and overall revenues increased 3.2% to $28.10 billion. Operating income increased 10.7% to $849 million and net income increased 11.9% to $545 million. Comparable Sales – Costco reported overall comparable sales increased 1% with United States locations increasing 1%, Canadian locations increasing 4% and other international locations flat compared to last year. Excluding gasoline and foreign currency exchange (gas/fx), overall comparable sales would have increased 2% with United States locations increasing 1%, Canadian locations increasing 5% and other international locations increasing 3%. Average member traffic increased 2.2% and the average transaction decreased 1.3% (including gas/fx) or was “flat” compared to last year (excluding gas/fx). In terms of comparable sales geographically, the Northwest, Texas, the Midwest, Mexico, the United Kingdom and Korea produced the strongest results. In terms of comparable sales by department: food and sundries were “flat” compared to last year (spirits, sundries and deli were the strongest categories), hardlines were “flat” compared to last year (hardware, tires and health and beauty aids were the strongest categories), softlines increased in the low single digits (apparel, small electrics and special events were the strongest categories) and within fresh foods, produce and deli were the strongest categories. Merchandise Gross Margins – First quarter merchandise gross margins increased 29 basis points from 11.29% last year to 11.58% this year. Merchandise gross margins in food, sundries, hardlines, softlines and fresh food increased 17 basis points. However, food, sundries, hardlines and fresh food merchandise margins were even higher as softlines merchandise gross margins decreased due to warmer seasonal weather affecting apparel. Locations – Costco ended the quarter with 723 worldwide locations including 502 in the United States, 94 in Canada, 36 in Mexico, 28 in the United Kingdom, 25 in Japan, 12 in Korea, 12 in Taiwan, eight in Australia, four in Puerto Rico and two in Spain. Membership – Costco’s membership renewal rates remained consistent and strong at 90.3% in the United States and Canada (94.3% for business members and 89.5% for consumer or gold star members) and 87.6% worldwide. The number of Costco cardholders continues to grow consistently.

At the end of the first quarter, Costco had 37.1 million gold star members (up from 36.2 million at the end of its third quarter and 36.8 million at the end of its fourth quarter), 7.3 million paid business members (up from 7.2 million at the end of its third quarter and the same as at the end of its fourth quarter), 3.5 million paid business add on members (the same as at the end of its third and fourth quarters), 39.4 million free spouse cardholders (up from 38.6 million at the end of its third quarter and 39.1 million at the end of its fourth quarter) for a total of 87.3 million cardholders (up from 85.5 million at the end of its third quarter and 86.7 million at the end of its fourth quarter). The number of executive members increased from 17.0 million at the end of its third quarter to 17.4 million at the end of its fourth quarter to 17.7 million currently. Inventory and Accounts Payable – The average inventory per location decreased slightly $14.9 million per location last year to $14.8 million per club this year. The company’s merchandise to account payable ratio was 93% compared to 90% in the fourth quarter last year. Online – Fourth quarter sales for Costco’s online business, which operates in the United States, Canada, the United Kingdom, Taiwan, Korea and Mexico, increased 8%. On a comparable basis, online sales increased 7%. Costco has been focusing on improving the performance of its online business in three ways.

For merchandise, Costco is adding more high end items on an everyday basis and improving inventory levels on higher velocity items. For functionality, Costco is improving its search feature, reducing the number of checkout clicks to two, automating its return process and enabling members to more easily track orders. For distribution, Costco is increasing the number of online depots to increase delivery speed and reduce delivery expenses. Expansion – Costco opened a total of nine locations in its first quarter including one relocation. Costco is planning to open two locations in its second quarter, five locations in its third quarter and 16 locations in its fourth quarter. Additionally, Costco will relocate two clubs during its last three quarters. In total, Costco will open 34 clubs in its 2017 fiscal year, including three relocations. Excluding those relocations, Costco will open 16 clubs in the United States, eight in Canada and one each in Taiwan, Korea, Japan, Australia, Mexico, France and Iceland. Millennials – Millennials are defined as being born between 1982 and 2002 and are between 14 and 34 years old. A couple years ago, the average age of a Costco adult member in the United States was approximately four years older than the comparable average age in the United States. Currently, the average age of a Costco adult member is two years older than the comparable average age in the United States. Costco has not done anything overt to attract younger members and lower this figure so their normal day-to-day buying, merchandising and operating efforts seem to be attracting, among others, millennials to shop at their clubs.

Costco Reports November, 2016 Sales Marketwired – November 30, 2016

Costco reported November, 2016 worldwide club sales increased 2.8% from $9.68 billion last year to $9.95 billion this year. It is estimated that national sales increased 3.4% to $7.26 billion and international sales increased 1.3% to $2.69 billion. Costco reported that overall comparable sales increased 1% with United States locations increasing 1%, Canadian locations increasing 1% and other international locations decreasing 2% compared to last year. Excluding gasoline and foreign currency exchange (gas/fx), overall comparable sales increased 2% with United States locations increasing 1%, Canadian locations increasing 3% and other international locations increasing 4%. Member traffic increased 2.3% with the company’s average transaction decreasing 1.3% with gas/fx or decreasing 0.3% without gas/fx.

8 FINANCIAL December 16, 2016

Sam’s Club

Sam’s Club Reports Third Quarter Sales and Operating Results Company Press Release – November 17, 2016

Sam’s Club reported third quarter sales and operating results for its United States locations ending October 28, 2016 via a press release and prerecorded conference call. The following is a summary of that information: Sales and Earnings – Third quarter sales, including gasoline, increased 1.1% from $14.08 billion last year to $14.24 billion this year. Third quarter sales, excluding gasoline, increased 1.8% to $13.17 billion. Operating income, including gasoline, decreased 26.5% from $539 million last year to $396 million this year. Operating income, excluding gasoline, decreased 22.7% to $381 million. The decrease in operating income was due to planned investments in employees, technology and item promotions (including an increased number of product demonstrations) as well as a reduction in gasoline profits. Comparable Sales – Third quarter comparable sales, including gasoline, increased 0.7%. Excluding gasoline, third quarter comparable sales increased 1.4% with average member traffic decreasing 0.5% (compared to a 0.3% decrease last year) and the company’s average transaction increasing 1.9% (compared to a 0.7% increase last year). Membership – Membership income increased 2.3%. Merchandise Gross Margins – Third quarter merchandise gross margins decreased 26 basis points (including gasoline) and decreased 12 basis points (excluding gasoline). The decrease was partially due to planned promotional activity in the technology, office and entertainment categories. Inventory – Overall merchandise inventory increased 5.7% (4.0% on a comparable basis) as the grocery and tobacco categories were expanded to better serve business members. Merchandise Sales – The following are third quarter results by department:

Fresh, Freezer and Cooler – Comparable sales decreased in the mid single digits due to deflation in fresh meat and dairy and assortment changes in the freezer which negatively impacted sales. However, produce produced positive results.

Grocery and Beverage – Tobacco sales were strong and water, sports drinks, adult beverages and snacks generated good sales due to new item introductions. However, candy, oils, rice, canned protein and baking produced weaker sales results.

Consumables – Paper goods, laundry, health and beauty aids generated positive sales through strength in private label and the introduction of new and exclusive items.

Home and Apparel – Apparel produced strong sales. Sales strength was also reported in toys, home and seasonal hardware due to item merchandising and a successful Savings Celebration promotion event.

Technology, Office and Entertainment – The exit from movies and music negatively impacted sales however,

stronger sales were reported in wireless, connected home and wearable devices. Health and Wellness – Nutrition and protein drinks produced strong results.

Warehouse Club Focus (ISSN: 1533-6816) is published twice a month by HHC Publishing, Inc. The annual subscription rate for twenty-four issues is $479 (payable in U.S. currency) and delivery is via email. HHC Publishing, Inc. accepts Visa, MasterCard and American Express credit card payments. Subscription requests should be sent to HHC Publishing, PO Box 9138, Foxboro, MA, 02035-9138. You may also email (info@hhcpublishing.com), call (617-770-0102) or fax (617-479-4961) your subscription request. The information in Warehouse Club Focus is based on sources believed to be reliable and, while extensive efforts are made to assure its accuracy, no guarantee can be made. The opinions expressed are merely the opinions of Warehouse Club Focus and those opinions do not necessarily reflect the opinions of the companies covered by the publication. Warehouse Club Focus is not endorsed or supported by the companies covered in the publication nor is any product endorsement implied. Copyright 1997 – 2016, HHC Publishing, Inc.

9 FINANCIAL December 16, 2016

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