Costco often sells your groceries before it pays for them

The Sunday Teardown · Costco

Costco's annual report, filed in October, contains a sentence that most of its members have never read. "We often sell inventory before we are required to pay for it." At the end of August, Costco owed its suppliers $22.6 billion and had $19.3 billion of merchandise in its warehouses and depots. On average, the goods on the floor sell through in about 27 days, and the bills for them come due in about 31. For those few days, the money from your cart is in Costco's account and the supplier who made the product is still waiting for it.

That is half of how Costco makes money, and the membership card is the other half. Membership fees came to $5.9 billion in fiscal 2026, equal to 64% of the company's net income. On the merchandise itself, Costco kept $11.09 of every $100 rung up, before paying for a single building or a single employee. Once the warehouses, the payroll and the trucks are paid for, about $1.94 of that $100 is left. The fee carries most of the profit, which leaves the merchandise priced very close to what it costs Costco to put it on the floor.

So when a Costco price looks impossible, a good share of the answer sits on the supplier's side of the loading dock. This week looks at Costco from that side. I'll go through what it means to a plant when a store carries fewer than 4,000 items, what Costco asks of that plant before a product goes on the floor, and how to read the back of a Kirkland Signature package to find out who made it. Keep one more line from the annual report in mind as you read. Kirkland Signature products sell for less than the national brands next to them, and according to Costco they "generally carry higher margins." The cheaper item is the one Costco earns more on.

Costco ran 939 warehouses at the end of August, with 84.1 million paid members and 150.4 million cardholders. In the United States and Canada, 92.3% of members renewed. Those are the numbers investors watch. The number a supplier watches is a different one. Each warehouse carries fewer than 4,000 active items in its core business. Costco calls that "significantly less than other broadline retailers," and a conventional supermarket averages 33,248, according to the Food Industry Association.

Think about what that does to one slot on the floor. A supermarket fills an aisle with dozens of coffees in several sizes each. Costco carries a handful, and the one it picks goes into hundreds of warehouses at once, in one pack size, on a pallet. For the plant that wins the slot, it can be the largest order on its books. For the plant that loses it at the next review, it can be the largest hole. Costco knows this, and so does every supplier across the table from a Costco buyer.

The annual report is careful on one point. Costco says it does not get "a significant portion of merchandise from any one supplier." That protects Costco. It says nothing about how much of any one supplier's business comes from Costco, and that is the number that decides how a negotiation goes.

Every package of food in the United States has to name somebody. Under the federal labeling rule, 21 CFR 101.5, the label must give the name and place of business of the manufacturer, the packer or the distributor. When the company named did not make the food, its name has to carry a phrase that says what its connection is, such as "Manufactured for" or "Distributed by." On a Kirkland package that line reads Distributed by Costco Wholesale Corporation, with a Seattle post office box on older labels and the Issaquah headquarters address on newer ones. The phrase means Costco did not make the food. It does not say who did.

Meat and poultry are the exception, and they are the place to start. Anything made under USDA inspection carries an establishment number, inside the round inspection mark or printed as EST. somewhere on the package, and every number belongs to one plant. The USDA publishes the full list as the Meat, Poultry and Egg Product Inspection Directory, searchable and updated weekly. A number starting with P is a poultry plant, M is a meat plant, and a plant that does both carries both. When the USDA issued a public health alert in September 2023 for Kirkland Signature chicken tortilla soup that was labeled gluten free and was not, the alert printed the number from the tub, P-18468. The directory puts that number at Kettle Cuisine, at 330 Lynnway in Lynn, Massachusetts.

A few packages name the maker outright. The front of a bag of Kirkland Signature House Blend coffee says custom roasted by Starbucks Coffee Company. The Kirkland green tea sold in Canada carries the Ito En logo next to Kirkland's. Both are names a shopper already knows.

For everything else, the most dependable place to find a Kirkland maker is a recall, because the firm that runs a recall is usually the firm that made the product, and the FDA's enforcement records list it by name. The Kirkland Signature butter recalled in October 2024 for a missing milk allergen statement was made by Continental Dairy Facilities Southwest in Littlefield, Texas. The Kirkland organic pasture raised eggs recalled that November came from Handsome Brook Farms. And in October 2020 Bumble Bee recalled solid white albacore tuna after workers found swollen cans on the labeling line, and the FDA's record describes the product as tuna "sold under the Bumble Bee and Kirkland Signature brand names." Both came out of Bumble Bee's plant in Santa Fe Springs, California, on the same shift, and the second half of this issue puts their labels side by side.

So here is the question I want you to carry into the second half. A Kirkland item sells for less than the national brand next to it, and Costco says it earns a higher margin on it. Sometimes, as with that tuna, the two come out of the same plant. Costco already has your money before it owes the plant for the can. If the price is lower and Costco's margin is higher, someone in that chain is taking less, and it is worth knowing who.

Below the line for paid subscribers. I go through the audit a plant has to pass before a Costco order ships, including the one that arrives unannounced, and what the plant pays if it fails. Then I work through what one Costco item does to a production schedule and to a plant's cash. I put the Kirkland and Bumble Bee tuna labels side by side and show what changed between two cans from one plant, then the plants Costco built behind the $1.50 hot dog and the $4.99 chicken. I close with Kirkland coffee and chicken priced against the brands, where your $100 goes according to Costco's income statement, and what I'd buy.