Wednesday, October 20, 2021

Costco bans almost everything because it’s stuffed for the holidays

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First, it was no more dairy. When a salmonella outbreak last summer tainted thousands of eggs, Costco began denying customers cartons of eggs from each farm in the outbreak region and insisted that no other farm in the Midwest received eggs with salmonella from the Bexar County farms from which contaminated eggs were produced.

“We have basically shut down all fresh eggs coming into our warehouse,” Costco spokesman Jim Sartain told Fox News at the time.

Now Costco is restricting purchases of almost everything, including toilet paper, milk, eggs, green tea, orange juice, bottled water, onions, sugar, soy sauce, rice, tortillas, small packages of nuts, tortilla chips, hamburger meat, vegetable chips, corn and flour.

The Costco.com site sent this statement last week to The New York Times, the Fresno Bee and other media outlets: “Because of increased demand across the warehouse channel, it is necessary to restrict items, limiting the options available to customers at the time of checkout.”

Items are being targeted as the buildup of demand gives retailers “very limited room to buy,” Sartain told The Times. It’s one of the practices created during the peak of the supermarket war for customers in the 1990s.

“The volume of people going to Costco is increasing and the demand for those things is increasing,” Sartain told The Fresno Bee. “It’s a situation that is better for our members.”

It is not immediately clear why the retailer is limiting sales of every kind of food. But it is worth considering that people remember the holidays of Thanksgiving and Christmas when they could find a wide variety of products at supercenters: fresh-baked cookies from the store bakery; pudgy turkey or beef steaks from the grill stand; brightly wrapped boxes of foil gifts, year-round; cheeses on a shelf; frozen meals from a cold food case.

Related Image Expand / Contract This Monday, Feb. 26, 2018 photo shows bread at a Costco store in Eugene, Ore. (John Fowler/The Register-Guard via AP)

Weighed down by a decades-long inflation, the food cost bar keeps rising. But with bigger families and more sales of prepared foods, in some cases, the cost of basic food items, including those that are not packaged, is even harder to absorb. And Costco, with its colossal size and nationwide spread, may not be able to soak up the extra cost of supplying all of these products. It has sufficient pricing power to boost prices but its stock price would surely be hit. At the same time, a grocery, hardware or small appliance store could bear some of the cost and has more local economies of scale to pull it off. Costco already boasts that 70 percent of its merchandise is used by members annually. It is trying to drive out unused inventory with lean inventory-management practices, including by limiting purchases. One source of cash to purchase more items could be to raise member prices.

The path of least resistance is to limit what people can buy and sell. But it often leads to price gouging. Wal-Mart, for example, has tried to curb food trading through its popular Neighborhood Market grocery store chain. Last year, the store gave customers five days notice before it shuts down stores — a sign that shelves will soon be empty. At a packed Charlotte, N.C., store, people openly searched through bins and containers waiting for supplies of bread, milk and more. One market that featured fresh fruit and vegetables was permanently closed.

“We are too big to fail,” a female employee told the Charlotte Observer at the time. “Our merchandising decisions are so global that we cannot risk losing the largest consumers of our product: our members. We have to figure out a way to stay in business.”

The course of least resistance in retailing is always the dealmaker. But in Costco’s case, frugality can be uncomfortable, even before you consider the new path of least resistance, which is to limit the number of shoppers.

Annie Lowrey writes for The New York Times opinion page.

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