The Costco/Coca-Cola Standoff: The Risk For Costco

Yesterday, I reported that Costco is playing hardball with Coca-Cola Co. in its latest price negotiations, cutting off its orders for Coke products and publicizing the fact that Coca-Cola isn't as flexible with pricing as Costco feels its members deserve.

I brought this topic up in an executive breakfast I attended with about a dozen or so procurement execs this morning. A sentiment among those in the room was disbelief. Many folks said that they expected consumers to remain loyal to Coke products and go elsewhere to buy them. Plus, while they were at those other stores, they would buy other products there that they would have otherwise bought from Costco.

In other words, Costco runs the risk of not only failing to save the money they were trying to save, but also losing revenue and customer satisfaction in the process.

I'm not in so much disbelief. Costco is a big company with smart people. I think that their risk is a calculated one. I can't see them not understanding the potential impact of this strategy if it fails.

And, even if Coca-Cola really doesn't budge after this "test," I am guessing that Costco may turn around after a few days or weeks and say "OK. We'll pay your most recently proposed price." And Coca-Cola will likely accept. Costco, then, would at least know that they truly tested the pricing floor and got the maximum discount they could get.

Again, we'll just have to wait and see what happens...

To Your Career,
Charles Dominick, SPSM
President & Chief Procurement Officer
Next Level Purchasing, Inc.
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