Season 2 Episode 3
Chad Sokol
This Week's Guest:
Chad Sokol
Costco Buyer
Chad is the dry grocery commodity buyer for Costco Bay Area, working on increasing rotations and diversity of extra virgin olive oils from Spain, Greece, and California.
He is part of Costco’s national olive oil buying team, and works with the industry to educate members of the world’s second-largest retailer about olive oil. In addition to large-scale national buy opportunities, Chad seeks out small, high-quality suppliers to increase item selection and diversity.
Chad recently began serving as a retail representative to the California Organic Product Advisory Committee.
Costco, in case you don’t know is the second largest retailer in the world with six hundred and eighty-nine warehouse stores, one hundred and seventeen thousand employees and eighty-one million members described as a large, loyal and affluent constituency with an average annual household income of one hundred and fifty-six thousand dollars a year.
Costco seems to be in a class by itself among big box stores when it comes to olive oil. Its Kirkland Signature is a consistent top performer in off the shelf tests and critical reviews, an anomaly for mass retailers that serves as a role model for the industry if any of the others are in fact paying any attention at all.
Chad Sokol is Costco’s commodity and dry grocery buyer for Northern California and Nevada where he decides what goes on the shelves in a market larger than the economy of some countries and where Chad says he is constantly seeking new opportunities that promote environmental, health and social welfare. He joins us today from San Francisco. Welcome Chad.
Thank you for having me.
I’m so glad you’re here because Costco has been a leader among major chains when it comes to this product in more ways than one. Do you have any idea how much olive oil Costco buys each year?
I would just say a lot. I don’t know if I’d feel comfortable sharing too much detailed information, but it is quite a bit. We carry olive oil in all of our stores. Just looking at Northern California alone we’re about four hundred and sixty-five warehouses, so we also refer to our stores as warehouses. Olive oil in all of those in various forms, extra virgin olive oil as well as pure, refined olive oil as well.
You’re part of Costco’s national buy team for olive oil. How does that team work?
The team, we work on a couple of different things. Typically our private label which is the Kirkland Signature Brand is purchased and coordinated all out of our corporate office in Issaquah, Washington. Those buyers up there are typically working on just the Kirkland Signature private label programs, but in addition to just those couple buyers up there they coordinate with several of us on regional level.
Really I think that’s what really sets Cosco apart from other retailers is our nimbleness and the ability to tap into regional buying and look at our local demographics in a way that I think when you have centralized buying for an entire company you may not be tapping into the correct demographics or the needs of particular communities. That’s one thing that we help offer is insights into what our members are looking for in our particular regions. On a national buying team it might be myself and maybe a a buyer from the Northwest or the Southeast, Northeast regions, Midwest and then international is included in that as well.
Last year it was big news that Costco began sourcing in Greece for its Kirkland’s Best Olive Oil after a bad harvest in Italy led to a scarce supply there. I know you’re also working at increasing the diversity of extra virgin olive oils from other regions too. How do you go about doing that, Chad?
I think in this case specifically Italian olive oil had been a very staple mainstay of Costco for a long time. As you mentioned with supply issues last year obviously we sell so much volume that at some point in time we cannot continue to just keep growing our business only sourcing from one country. I think it was a great opportunity to be able to go outside that and test from like you said, with Greece so that gives us the opportunity to not only test the quality and see how our members respond to that, but it gives us additional supply.
It does a lot of great things for us. In this case we work very closely with partnerships direct from source. Typically with all of our Kirkland Signature items we put out there we want to work as closely as possible with producers and millers. Then use them as well as an importer to help get that product here to the US.
One of our advantages in buying is that we try to limit the number of layers, number of steps between a raw material product and then the end consumer. In this case we work with a couple different partnerships on the farm level to the mill to the producers all the way to the final step in our Costco stores. The Greece product was an outcome of one of these partnerships. We’ve had I would say very good success.
I’m personally excited. When I taste Greek olive oil side by side with some of the other ones I’ve always been on a personal level, I love it. Taste profile is fantastic. I think it’s a great, great quality product. I was very excited that we were able to test that and get it into our stores and expand that member base a little bit.
Not to mention you made the day I’m sure for a number of Greek suppliers.
Yeah.
In addition to that you also look for, you told me earlier, small local suppliers to increase your selection. What local brands are you carrying?
Right now I’m working quite a bit with California Olive Ranch. There’s several other smaller California suppliers that I’ve been in discussions with and those deals are not necessarily finished yet, so I would hesitate to say who they are, but we have a lot of small local guys who reach out to us. They mainly bottle very small quantities each year, but for me as a buyer what we look for more than anything is quality.
Quality is always first for us so there’s so many great oils here coming out of California, very high quality product that I would love to get into a couple of my stores. I think that’s what gives us a unique advantage is I can buy a product and just put it into one Costco. I can put it in two Costcos. I don’t have to put it into all of my locations. It gives me the ability to find a local supplier that develop a relationship and they have all of the quality protocols in place. I can put their product into one store as a test and really offer something local that that’s so important to our members.
I think you see that across all retail industry. People who are looking for high quality products. They’re looking for local. They’re looking for organic. All of those things. What’s great about Costco is we can supply both. We’re obviously a huge retailer and do a lot of volume, but we can also work with very small guys as well. For me as a buyer I think that’s what makes my job so exciting.
Do you think that for those reasons there’s a market contrast between the product mix at Costco and the mix at for example Walmart?
Yeah, I think so. I would hesitate to say too much about what they have on their shelves or other retailers. The biggest difference between what we do and everybody else out there is we have a limited item selection for every category. In olive oil I might only have two, maybe three extra virgin olive oils at any one time on the shelf.
We’ll have a private label and then I just might do one or two brands next to that. Whereas most retailers might have twenty, thirty, fifty different oils on the shelves. There’s so much out there. We really have to limit our sku selection and that’s just part of our overall business model. That is one thing that’s very different is just the limited selection that we put out there. Obviously that creates competition for people to get into Costco as producers and vendors, but it also gives us a chance to really focus on the highest quality. If I’m only going to put two oils on the shelf, well, I want to get the two best that I can find.
Does that include major brands such as Bertolli and Colavita for example? Are those among your mix?
Not for me. In my particular region, no, they’re not. My private label program under that Kirkland Signature kind of takes care of the space that those brands may fill for other retailers. Outside of the Kirkland Signature for me I’m really looking for smaller producers, local, very high quality. Some of those national brands may not have a place at all times, especially in olive oil. I don’t have those in my Bay Area region. That’s not to say that another region doesn’t have them. They might carry them at some point.
How important would you say olive oil is within your department?
I would say extremely important as not only category, but something that we want to be known for. I think when you come to Costco as a consumer our members come in, every department has their signature item. There’s the jokes, the giant bins of toilet paper and the heavy cases of water. All the big things that we sell.
We always have some type of signature item in all of our departments. For me as a dry grocery buyer I’m extremely proud of the selection we have in olive oil. I feel very good with our quality. Our protocols that we have in place, both like I said at the producer level all the way to finished goods that we have independently tested all the time. I feel very, very good and very comfortable with the quality of what we have. For me that’s something I feel very proud about and excited. Not only in terms of dollar volume, it’s a very, very big category for me, but I think quality-wise it’s definitely something we put our stamp on and feel really excited about.
Speaking of dollar volume, how does the growth in sales of olive oil stack up against other products and against other cooking oils?
I would say that there’s a little bit of a shift in it. This is one of those examples of where regional buying for us really makes a difference. For my specific local market and Bay Area high quality extra virgin olive oil continues to grow and just continues to do well out pacing things like soy oil or canola, the basic cooking oils. They definitely have their place and they do a lot of volume, but we don’t see as much growth. At least I don’t in my region specifically.
Extra virgin olive oil continues to grow and I think it’s a result obviously as consumers become more aware and the news pieces that float around you there and as the general public becomes more educated of the quality, obviously the health benefits and attributes, people just keep coming. It’s just been a great opportunity for us.
I was going to ask you about that, how that drives sales in your region.
I think that drives quite a bit of sales because we see that across other categories, other health related items where even coconut oil for example continues to do well for us and continues to grow. I think there’s a connection with the health benefit attribute there, other categories outside of the ones that I buy. I think we continue to see growth on things with health benefits. Especially our salmon program. People love the benefits of omega-3 fatty acids.
I think as members become more aware of good fats, bad fats and those types of distinctions they’re looking for high quality products. If you really look at high quality extra virgin olive oil on a price per ounce basis compared with other items that people could be buying it’s such a great value. It’s really not that expensive even for the highest quality oil for I think what you get for the health benefits, not very expensive compared to some other things that people spend money on. When you think about smoothies and shakes and cleanses and all those other things, I think olive oil is such a great value.
Chad, what controls are in place at Costco to monitor the quality of olive oil that comes through the system?
We independently test all of our products, whether it’s like I said, it’s at the producer level, the mills. The people that we work with we develop very close partnerships with. We also rely very heavily on third party audits that are controlled not by Costco or the producer. We always try to send out as much as we can to independent third party testers.
That’s very, very strict protocol that we have in place for all of our Kirkland Signature items. Then the other ones outside of that are it’s really up to the buyers to decide how those things are going to be handled and tested. We send out product all the time. We randomly pull stuff from the shelf once it’s already in the store. We have product tested before we even bring it into the store to begin with.
There’s quite a bit of testing that goes on. I think that’s where we feel very confident with what we have. Of course like anything it’s not absolutely perfect system. Something can slip through once in a while, but I think we feel very comfortable with partnerships that we’ve developed with our producers and suppliers that there is not purposeful adulteration. I think the only danger that you obviously have of extra virgin olive oil is how it’s handled along the way.
Which I will speak to. One of the greatest things about Costco is we move so much volume is that I don’t have old olive oil sitting on the shelf for a year, two years. I turn inventory so fast that that’s not really much of a problem. I know in my local stores in the Bay Area I could walk in any of them right now and I don’t have oil from the year 2013 or ’14 floating around out there. We have new harvest coming in all the time. That’s one thing I think that we can really help improve quality where some other retailers they might only turn over inventory once a year at best. You might see old oil sitting there that just doesn’t get caught or it could be overlooked.
Right. For you the concern might be more how long it spends in the producer’s tanks, and as long as it’s not there for very long it’s going to make its way to your customer’s kitchen quite quickly.
Yeah. Even our flow through system of our depots and how we manage trucks and how we manage logistics of flowing free into the buildings, we have such a great setup that product doesn’t sit around anywhere. We don’t have storage warehouses somewhere. We have cross dock depots that as product comes in it goes across the dock, gets loaded on a truck, goes out to the building within a couple of hours sometimes.
We don’t have product sitting in hot warehouses or sitting out in the trucks for days at a time. I think all those little steps is what really helps us bring a really good high quality product to the member.
It sure does. I’ve heard that you’ve honed your wine tasting skills and spent some time learning how to taste olive oil. Do you think you can tell the good from the bad?
I’m getting better for sure. Like with anything it’s not perfect, but I did spend some time in the liquor and wine department and went through some wine tasting certification classes and a lot of tastings. I think that really helped develop my own palate. With olive oil I’ve really tried to dive in. I’ve worked with some vendors I’ve met and I’ve also worked a lot with Alexandra Devarenne from the Extra Virgin Alliance.
I’ve been to quite a few tasting classes and I was in one a couple weeks ago up at McEvoy Ranch up in Marin and really learned a lot. Every time I take another class I’m just continuing to learn. I’m definitely not an expert by any means, but I definitely can tell a bad oil right away. When I came over to the commodities side and I started buying olive oil, as a typical consumer I didn’t really know the difference between what extra virgin olive oil was, pure olive oil.
I didn’t understand. I think it’s a confusing category for most people in the general market. Even me, I would typical just buy refined olive oil because I didn’t understand what the difference was. Then jumping into this category I’ve really tried to educate myself as quickly as I could and right away I would say in my own home pantry, my pantry looks very different than it did two years ago. I have three or four different styles of extra virgin olive oil at any one time. That’s mostly what I cook with all the time.
For me just a personal education has been so great here. Taking the classes I’ve taken, I just love it. Personally extra virgin olive oil is absolutely one of my favorite foods now. Several years ago I really didn’t purchase it that much. That was something I wanted on a personal level, I love it. Dived in and read Tom Mueller’s book last year and tried to educate myself as quickly as I could. That’s something I think I’m able to bring to the category that I don’t know if all buyers do that.
Of course a massive number of people walk through the doors of Costco everyday, but it’s such a rigid environment, like big box stores. There’s not much in the way of educating customers about the products on sale there, but I hear you’ve been working with Alexandra among others in the industry on ways to educate your members about olive oil. How are you doing that?
The first step to that really for us was I had brought Alexandra in to do olive oil 101 presentation just for our staff inside the buying office. Then I had her come back again and do an education for all of our warehouse managers in Northern California and Northern Nevada. We went through just discussing what is extra virgin olive oil? What’s the difference between that and refined or even virgin olive oil?
We did some tastings. That was my first step was to figure out how to really try to educate our own warehouse managers as much as possible. We do that with a lot of different programs. That’s typically the first step. Secondly we do have to rely a lot on our packaging and on our vendors to tell the story of our items. Part of what makes us good, and I think what makes us so nimble in Costco, is items are loaded on pallets. We have bare bones, we don’t have displays. We don’t have schematics in the building.
Everything sits on a pallet so it has to be able to be moved from one aisle to another depending on sales needs of that building or trying to drive excitement or whatever that may be. There’s not a lot of space for coasters or extra signs and that type of thing. In addition to educating our own staff and our warehouse managers we really have to rely on the packaging to do that.
Then I really haven’t finalized it yet, but I’ve been talking with Alexandra a lot on how to do ins-tore roadshows and demos. Costco is totally known for our demos. People make jokes about coming there for lunch. Just to walk around and grab the free samples. Sampling is something we’re known for, so with olive oil I think that I’ve been trying to figure out how to do something like that just with a very simple bullet points on signs to put next to a demo and have people taste olive oil and try to do some in-store education.
That’s another way that we try to educate our members. Like I said I’ve been working with her on that. We really haven’t quite finalized it yet, but I’m hoping to get something up and running in the next few months here.
I have to confess that I’ve never been to a Costco and I’m probably the only person in the world who hasn’t. In my market here we have BJ’s Wholesale Club. There are no demonstrations, there are no tastings. In fact I don’t think I’ve ever seen an employee in the aisles. Really there’s probably just a couple in the whole store because the checkout is done by yourself too. There’s very little interaction, certainly no education, so I didn’t know that about Costco is that you have tastings and demonstrations and things like that.
Yeah, that’s one of the things that keeps us so exciting and keeps our members coming back all the time. We change up our product mixes all the time. Then the footprint inside the store changes all the time. We’re always looking for new, exciting items. Our goal is that every time a member comes in they’re going to find something new and different, exciting.
We do do a lot of demos, a lot of tastings on products from all different departments. It’s a great way to do a quick education. We don’t have a lot of time. Each member are, people are in a hurry so it gives you a few seconds to talk through and discuss the quality of an item.
Chad, on the one hand there’s this procession of research extolling the health benefits of fresh, high quality extra virgin olive oil which we talked about before. On the other side you have things like the recent 60 Minutes expose on the corruption and fraud that have always plagued this product. We know that most of the product labeled extra virgin on the shelves of major retailers is not what it says it is, not just in this country, but everywhere else.
Why do you think that it seems like most mass market buyers are not paying attention to this? It’s not like there are too many bigger fish to fry. After all twelve million people watch 60 Minutes and are looking for answers in places like Costco and Walmart and BJ’s and everywhere else. Why does it seem like other buyers, not necessarily there, but in other places don’t seem to be too concerned about this? Or am I reading it wrong?
Mm-hmm (affirmative). No, I think that could be an accurate assessment. Without speaking down or negatively about buyers in other companies or other businesses, one of the tings, we’re very hands-on with Costco. It’s a challenge for us because where each buyer is responsible for usually quite a few different categories. I don’t just buy olive oil.
I buy coffee and flour and sugar and there’s a lot of different things. We usually say that we know a little bit about a lot of different things. With all of the products that we bring in we’re very hands-on. We want to taste product. We want to see it, touch it, feel it. We’re working out value so we’re very hands-on where I think sometimes buyers in other retailers or businesses are sometimes just selecting items. They’re looking at portfolios and they’re bringing in a selection of items. They may not personally touch, taste or feel those items.
For us, I think we pride ourselves on being buyers and not selectors. I really want to dive in. I want to know what this product tastes like. I taste everything that comes in in my region that I’m working as best as possible. I think that’s probably one of the things which I would say would set us a part a little bit.
Also just our general protocols. Costco, we’ve done this in every category that we buy since our inception. It’s really pushed quality as the one thing. We rely on outside third party audits, like I said, whether it’s plant food, safety audits, social audits. We push a lot of that. That’s very strict protocol for us with all of our suppliers. I think those are the protocols that help keep us safe and help keep us out of some of these scandals that plague other retailers. Like I said, it’s not a perfect system and anything can slip through at any time. You miss things, but I think we try as best as humanly possible to make sure that what we have and what the bottle says it is, it better be that.
It certainly seems like you’re succeeding. Are the world’s largest retailers do you think wired in such a way that they will always sacrifice quality for price? I’m not talking about Costco. I’m talking about the category in general. No matter what class action law suit might loom on the horizon is there going to be a point here do you think where the liabilities can no longer be ignored and mass market retailers the world’s largest, will finally look at this product as carefully as you have been and ensure that their customers are getting what they pay for?
Yeah, I think that’s definitely a possibility. I think that could happen. In fact actually where I met Alexandra was last year at a law firm seminar over in San Francisco on protecting your supply chain specifically developed around olive oil and some of the issues and problems along the different steps along the supply chain.
I think that was one of the things I walked away from that seminar with was that there’s obviously a lot of potential adulteration going on, whether it’s purposeful or not. Or just standards not being checked. I think those types of problems are definitely going to plague other retailers and they’re going to come to fruition. There’s definitely a lot of potential suits getting filed out there all the time. I don’t think they ever make it to court, but I think there’s definitely people looking for those opportunities out there. I guess I’ll call it that.
I do think it’s going to happen at some point. It’s also the thing that could happen to anything in the food industry. For us, our main concern is always ensuring that the quality of what we’re putting on the shelf most importantly is that what the bottle says it is, it is. We just sell a lot of refined olive oil, pure olive oil that I still think is a great, high quality product for cooking and for other uses. That versus extra virgin olive oil, my concern is just that whatever that bottle says it is, that better be what’s in the bottle.
Here, here. Chad Sokol is the commodity and dry grocery buyer for Bay Area Costco stores. Thanks, Chad, for an interesting discussion today.
Thank you very much, Curtis.