Costco growing as a supplier for small businesses

When Bret Hartman opened his Shell gas station in Raymond in 2001, he decided to stock the convenience store with products from the Costco Business Center in Lynnwood.

Twice a week, Hartman would make an early morning pickup at the Lynnwood warehouse and haul the supplies — mostly candy, beef jerky and cigarettes — to his store.

“The relationship with Costco allowed me, as a small-time business owner, to compete with other retailers, as my bargaining power for lower wholesale prices and promotional perks was tied directly to Costco’s bargaining power,” Hartman said.

He’s since leased that business to another entrepreneur. But Hartman is convinced that his Costco relationship was of great benefit in getting that business started.

The Costco Business Center model is relatively new. The Lynnwood location was the first Costco Business Center, opening in 1996. It was converted from a conventional Costco retail outlet when the Silver Lake Costco opened in Everett.

Rob Parker, Costco’s assistant vice president and regional manager for business centers, notes that today there are nine U.S. Costco locations serving businesses, with two in the Puget Sound region. They serve convenience stores, food services, professional offices and small businesses.

The Lynnwood location has a fleet of nearly 40 trucks, providing business-to-business delivery at a slightly higher product price. According to Parker, the business delivery model is a cost-neutral value-add for customers.

“We don’t want to use the order fulfillment and delivery ‘upcharge’ on delivered items as a profit center,” Parker said. “Rather, we establish a delivered pricing simply to cover the costs associated with getting the products to our members. The price is dependent upon the weight and volume of the items being delivered.”

Products available at CostcoBusinessDelivery.com bear the “delivered price.” But by shopping at the warehouses, businesses can get a slightly lower price.

Many small business owners come to the Lynnwood warehouse on a regular basis. I chatted with a restaurant owner from the Sammamish area who had his cart filled with bags of rice, frozen meats and vegetables. He visits weekly to re-stock.

The Costco Business Centers have been successful in their respective markets. Craig Jelinik, Costco’s CEO, has indicated that there is growth opportunity for more locations — perhaps 50 or more in the coming years.

Costco’s vision to support small businesses reaches far beyond the traditional supply chain. The Special Business Solutions issue of My Costco Services (Summer/Fall 2013) features a variety of executive services that can also help small business owners.

In partnership with others in the service industry, Costco offers to help small business owners set up 401(k) plans and phone services. Domains, websites and e-commerce solutions are also a possibility, in partnership with GoDaddy.com.

There’s payroll support, merchant credit card processing and even health-care solutions.

Furthermore, Costco has in-house printing services and can provide basic graphic design support. In some cases, the Costco Print and Copy Center staff will refer customers to work with outside vendors, but they do have staff on site to help with basic layout and setup.

Ordering custom logo clothing, hats and banners and business signage are all common at the print locations.

Not every business owner will find a need or value in some of these add-ons. But the benefit of one-stop shopping for these and other business services is still quite compelling.

There is no question that Costco has market power. Being a small business owner is no easy task, which makes partnering with an office and small business supplier that has clout a logical choice to reduce expenses.

Juergen Kneifel is a Senior Associate Faculty in the Everett Community College business program. Please send your comments to entrepreneurship@everettcc.edu.

About Costco

Costco is a membership warehouse, wholesale and retail business. More information about personal, business or executive memberships can be found at Costco.com.

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