Adding Value at Cost Plus

Cost Plus World Market is in the midst of a turnaround effort that incorporates unique and focused initiatives in wine ‘€” and to a lesser extent beer ‘€” to boost consumables sales, build store traffic and encourage consumer trial.

Adult beverages represent a particular opportunity for a retailer with as unique a format as Cost Plus. The chain ‘€” with 296 broadline stores across 33 states in the U.S. ‘€” features a wide array of home furnishings and gift items, with a bent toward the exotic and affordable, while also including a gourmet food and adult beverage component. Chainwide, 274 units offer wine and/or beer products.

To complete its turnaround, Cost Plus needs to get more out of existing customers and entice new shoppers. Beer and wine play a role in both ends.

‘€œWe’€™re focused on unique, exclusive and proprietary brands that are new to our assortment,’€ said Matt Gee, vice president of food and wine. ‘€œIt’€™s a strategy that was not optimized to the extent it is today. The role of wine and beer is increasing.’€

Cost Plus is best described as a lifestyle merchant, one that employs a strategy to suit a specific consumer style, in this case one that arises from an international outlook, a preference for casual living and a budget consciousness. Ultimately, a store employs a lifestyle approach to marketing and merchandising to get consumers to think of it first when they shop the range of products it provides. Execution requires tying together products so that they can be conveniently shopped according to the customer’€™s particular inclination.

‘€œIt’€™s the key to the way we merchandise and market the entire store,’€ Gee said. ‘€œCross functionality and the entertaining component are key in what we do on the consumables side of business. Then we tie it in with themes in home décor, home furnishings and outdoor furniture. We might tie in sangria with outdoor furniture and entertaining.’€

Leveraging Affordable Luxuries

Although home furnishings remain the major part of the Cost Plus assortment, the consumables contribution is more important today than ever as increasingly wary consumers cut back on major discretionary purchases in the weak economy. Cost Plus executives decided that they could build on the company’€™s reputation for fresh and fun products to entice consumers who had become more frugal given economic conditions, but who still want to keep a reasonable portion of excitement in their lives. Affordable luxuries, such as the wine and the kind of microbrewery and imported beer Cost Plus favors, have become more attractive as consumers rethink entertainment expenses including what they spend in restaurants.

With its Oakland headquarters on the threshold of California wine country, Cost Plus had a clear view of where its initial beverage opportunities lie. Other retailers including warehouse clubs and supermarkets have been positioning wine as an everyday beverage and consumers have responded, driving wine consumption in the U.S. Cost Plus had long ago developed an expertise in searching out reasonably priced gourmet and imported products in its key categories. In many ways, the marketplace was moving in its direction. Cost Plus just needed to figure out what approach would be most effective for its operation.

In 2008, Cost Plus began to act on a determination to reignite ‘€œthe sense of discovery’€ beverage consumers once had enjoyed at its stores. ‘€œWhen wine was launched in the stores 20 years ago, we were known for new brands and new wineries,’€ Gee said. ‘€œWe tried to rekindle that and have been successful over the last year.’€

Cost Plus was faced with a dilemma, though. Always value-oriented, it wanted to provide quality product at a sharp price, but its competitors were adding more of the affordable quality items emerging from established vendors to expand assortment in just the categories Cost Plus coveted. Cost Plus, though, pursued its own course.

‘€œEveryone in the market was going after well-known mass brands,’€ Gee said. ‘€œThe question we asked is: How do we develop our own and proprietary products? Proprietary brands are a key component of our strategy going forward and something customers respond to quite favorably. We really do leverage the sense of discovery and the customer experience when it comes to the wine portion of the store.’€

Launching a Proprietary Line

Cost Plus looked at its place in the market and determined that, as essentially a lifestyle store for the frugal but adventurous consumer, it would launch its new wave of wine initiatives with a collection specifically developed to pair with food, one that would serve the customer for both everyday consumption or entertaining other wine novices. Thus was born Foodies, a line that included a Merlot, Cabernet Sauvignon and a Chardonnay, each of which was labeled to link it with a center-plate entrée, whether pork, beef or chicken.

Given its lifestyle orientation, Cost Plus wanted to make wine more accessible for both the everyday purchaser who wanted to grab a bottle to accompany dinner and for the host who was trying to maintain a reasonable entertainment budget. Foodies might be right for a dinner party, but Cost Plus took things bigger when it launched ‘€œWine 4,’€ a three-liter box ‘€” or four-bottle equivalent ‘€” for $14.99. Wine 4 comes in two varieties, Chilling, a white blend and Grilling, a red blend.

Last year the company offered two new bottles as part of an ongoing effort, Crandall Brooks Napa Meritage for $14.99 and Carneros Pinot Noir for $19.99. ‘€œThese are line extensions to our Napa Cabernet and Napa Chardonnay, and a terrific value,’€ said Julie Joy, Cost Plus senior wine buyer.

Featuring More Than Just Private Label

ln addition, to private labels, Cost Plus has been making special purchases to offer its customers particular brands on feature, Joy noted. Last year, for example, it offered a varietal cultivated by the renowned vineyards of director Francis Ford Coppola. ‘€œIt is their Alicante Bouschet. We bought almost all they produced because we liked it so much. This is an Old World grape that originated in France, made its way to Italy and then to the U.S. The unique thing about this varietal is that the meat of the grape as well as the skin of the grape is red. This results in a very deep red and intense deep berry fruit.’€

Bright fuchsia packaging was developed to complete the wine’€™s presentation, Joy said.

‘€œWe also grabbed as much of the 2006 Virgin Vines Shiraz as we could,’€ Joy added. ‘€œIn fact, very few other retailers will have it. The 2006 vintage earned quite the review at the 2008 California State Fair: Best Shiraz Double Gold 98 Points. We have had huge success with this one and have partnered with the winery to continue the flow into our stores until that vintage runs out.’€

Joy continues to work on new wine programs to tempt Cost Plus customers and hinted that the next in store involves a vintage chosen to pair with chocolate. The hint was dropped not long before Valentine’€™s Day.

Seasonal products have become an important part of the Cost Plus wine program. For Halloween, Joy noted, the retailer offered two bottles, a red blend with the name Trick and white blend with the name Treat, to serve the celebration’€™s growing adult element. The Halloween wines were promoted for seasonal entertaining, and their launch follows on a summertime initiative that featured a Pinot Grigio for picnicking.

The Beer Component

Wine may have been the priority for Cost Plus as it realigned its adult beverage presentation, yet it has been applying lifestyle-merchandising principles to beer as well.

Cost Plus partnered with Golden West Brewing in a trial of Blue Marble Organic Pilsner, appealing to customers who have turned to organic and natural products as they’€™ve adopted healthier, more environmentally conscious lifestyles. That trial didn’€™t quite work out, perhaps because Cost Plus has emphasized the international rather than organic in its food and beverage program.

That aside, the retailer continues to look to its partners, including both importers and microbrewers, to enhance beer merchandising and promotions as it determines how beer suits its overall adult beverage goals.

‘€œWe’€™ve already done some cross merchandising of food with beer,’€ Joy said. ‘€œWe’€™ve done Kingfisher with Indian food, pumpkin ale with Thanksgiving. And we’€™ll hit with occasions such as St. Patrick’€™s Day. We are definitely pursuing beer in the same way as wine. There is the shift away from generic to enjoying artisan beers. Our customers are always looking for the next new and fun beer. They are open to the kind of artisan beers that give them the same feeling they get from the rest of the items in the store. We always talk with people who want to do projects with us.’€

Cross Merchandising Efforts

As Cost Plus focuses on consumables, the value of cross merchandising different categories has only become more important. As the retailer tends to feature exotic cuisines, pairing food with beer and wine is another opportunity to help its customers enjoy new experiences in a way that differentiates the store from other retailers.

‘€œAlthough we’€™re limited a little bit due to a retail model that is relatively self-service, we do differentiate ourselves through informational signage that makes simple shopping recommendations about relevant food parings, whether customers are going to do, say, Indian food or Moroccan food. The signage contains useful information, tying food to the appropriate wine or beer.’€

Gee said establishing a lifestyle approach to beer and wine promotion was critical for Cost Plus and for several reasons. For one thing, it makes it easy for the casual customer to identify a product they might like. When a wine is promoted as appropriate for picnicking, for example, a customer doesn’€™t need to weigh complex considerations about varietals and vintages. To the degree that the customer trusts the store to provide suggestions, and to the degree products offered for trial fall within customer price tolerances, Cost Plus has the opportunity to become a destination that provides support for its customers’€™ everyday and entertainment activities.

‘€œIt’€™s very important to us to demystify wine for the everyday casual consumer,’€ Gee said. ‘€œWe don’€™t strive to be a fine wine shop with the look of a museum. We are looking for everyday consumption and entertainment, and we have done things to make that simpler in how we laid out store and the signage we’€™ve added to the merchandising mix.’€

Accenting Flavor and Occasion

ln the store, merchandising was simplified by placing as much emphasis on elements such as flavor and occasion as on regions of origin. As for signage package, the idea was to provide information that consumers could immediately use and apply.

‘€œSignage is in a simple cadence and states information like what the wine pairs with and adds some fun notes to that.’€

In fact, signage can offer tales of grapes and geography, Joy said, to enhance customer knowledge about wine and encourage their interest in it.

‘€œWe’€™ll include a fun fact, something interesting about the wine that gets them to learn something they might never have known. Customers like to share facts like that. With wine, those connect them to the product,’€ Joy said.

At Cost Plus, wine also connects the customer to the stores general merchandise section. Cost Plus offers an extensive assortment of glasses, bar tools and other products directly tied into wine and beer consumption. In fact, wine glassware and wine racks constituted two of the featured segments among those constituting the kitchen and tabletop category at Cost Plus. When Cost Plus promotes wine glasses, or even outdoor furniture, it is speaking to consumers whose habits favor time spent out in the yards or on decks or other outdoor spaces.

Aligned in a lifestyle-merchandising context, general merchandise and consumable goods can support one another. Home furnishings can promote trial for wine and beer and vice versa. Home goods may have traditionally led consumers to the Cost Plus beverage offering, but, to the extent the retailer can provide freshness and novelty in its consumables assortment and become a bigger destination for beer and wine, the reverse may hold true as well. These days, driving shopping frequency is more important to Cost Plus than it has sever been. Consumers might like the Cost Plus selection of grilling tools better than that offered at Target, but confronted with barbecue accessories when they are in Target buying a bottle of wine for Friday evening, many may simply settle for what’€™s convenient. Cost Plus wants them to think more about what suits them and where they can get it.

Shifting Toward Consumables

Wine and, to a lesser extent, beer have been helping Cost Plus right itself.

Gee said that consumers have generally viewed Cost Plus as a home furnishings retailer despite the range of consumables in the store assortments, which includes a variety of coffees, soft drinks, snacks and grocery items. Still, store space has traditionally been slanted toward non-foods, which includes a limited assortment of jewelry and fashion accessories as well as home furnishings. As a result, picture frames, candles and glassware had to do the work of luring customers into the stores where the unique consumables assortment was supposed to prompt more frequent visits. The emphasis Cost Plus places today on adding new and proprietary food and beverage items helps the company overcome the challenge of shopping frequency, as even loyal customers typically visit a home furnishings store only a few times a year. In contrast, retailers who focus on consumables can have customers returning a couple of times a week.

A few years ago, though Cost Plus veered deeply into the furnishings end of the business based on success with a more elaborate furniture presentation. Around the middle of the decade, it began to experience significant erosion when the specialty home furnishings retail sector slumped based on shifting consumer priorities and more competition from broadline operators including JCPenney, Target, Wal-Mart and Costco.

The prolonged slump in home furnishings has forced retail retrenchment and even bankruptcy, with liquidating Linens ‘€˜N Things being the latest victim. In the current economic malaise, retailers who sell home furnishings and other general merchandise have tended to do better if they also sell food and beverages.

Cost Plus management conceded that the company needed to reprioritize food and beverages in a return to strategy the company had pursued in the 1990s. The shift toward consumables is starting to gain traction. It was evident in the Company’€™s recently posted third quarter results. According to its statement filed with the United States Securities and Exchange Commission, consumables, as percentage of sales, were up to 37% versus 36% in the same period last year. With the shift toward consumables sales, customer count was up as well.

Wine & Food Pairing

Pairing food and wine is increasingly popular but intimidating for some consumers, so Cost Plus decided it was going to lend a hand.

The retailer launched its Foodies wine collection in March 2008, instantly making it a simple matter of finding the right bottle to drink with a meal. The line rolled out with a California Chardonnay, Merlot and Cabernet Sauvignon, with each retailing at a base price of $7.99 per 750 ml bottle. Whimsical labels featured illustrations designed to signal to consumers how to pair each with the right entrée: a pig on the Merlot indicated pork; a cow on the Cabernet Sauvignon designated beef; and a rooster on the Chardonnay cried fowl. Each animal representation was also a diagram detailing unique menu items, like the Cabernet with Sunday Pot Roast or Garlic-Braised Shanks, just so the message was unmistakable.

The intention with Foodies wasn’€™t only to produce a wine for everyday, but for entertaining as well. For folks who might be casual drinkers, sipping white wine on the deck but nervous about purchasing the right wine for a dinner party, Foodies offered a quick fix and a small step into the world of food and beverage pairings. The idea is rooted in lifestyle merchandising concepts that hearken back to the home furnishings sector and Kmart and Martha Stewart, who popularized the idea of coordinated sheet and towel programs for consumers who wanted to do their own home decorating but were worried they didn’€™t know enough to get the look right. Foodies extends the idea to wine, except, rather than help consumers match towels and bathroom accessories, Cost Plus is giving them a hand in pairing wine and steak.

The U.S. may be home to an aging and more health-conscious population today, but many people still want to live the good life, and so are trying to integrate adult beverages into their evolving lifestyles. With its positioning and price, the Cost Plus Foodies wine collection makes it easy.

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