Warren Buffett explains how Costco is dominating in one crucial area

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Warren Buffett explains how Costco is dominating in one crucial area

warren buffett

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Warren Buffett says Costco is dominating retail.

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  • Warren Buffett sees Costco as a dangerous competitor in the retail space, due in large part to its explosive private-label brand Kirkland.
  • In an interview with CNBC, Buffett cited Kraft Heinz's 2018 sales of $26.3 billion, compared to sales by Costco's Kirkland brand, which reached $39 billion.
  • "Here [Kraft Heinz] are, 100 years plus, tons of advertising, built into people's habits and everything else," Buffett said. "And now, Kirkland, a private label brand, comes along and with only 250 or so outlets, does 50% more business than all the Kraft Heinz brands."

Costco's Kirkland brand is dominating the packaged-goods space, according to Warren Buffett.

"The packaged-goods brands [are] losing some ground against the retailers," Buffett said in an interview with CNBC.

According to Buffett, the plethora of 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.

"When you're going toe to toe with a Walmart or a Costco or maybe an Amazon pretty soon ... you've got the weaker bargaining hand than you did 10 years ago," Buffett said.

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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 last century, the company's sales totaled $26.3 billion last year. Sales of Costco's Kirkland brand grew to $39 billion in 2018.

"Here [Kraft Heinz] are, 100 years plus, tons of advertising, built into people's habits and everything else," Buffett said. "And now, Kirkland, a private label brand, comes along and with only 250 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.

Read more: Warren Buffett's Berkshire Hathaway is taking a nearly $4 billion hit as Kraft Heinz craters to a record low

Costco's Kirkland Signature private-label brand grew to $39 billion in 2018, up from $35 billion in 2017, the company reported in December. Last year, Kirkland accounted for nearly a third of all of Costco's sales.

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"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.

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