Channel Leaders*
Chain	Annual Sales (in billions)
1. Costco Wholesale Corp.	$51.9
2. Sam's Club	$39.8
3. BJ’s Wholesale Club Inc.	$7.7
*For 2005

Wholesale clubs are certainly not looking to be all things to all people. In fact, right from its inception, the channel made it clear that in order to shop in it, you had to, literally, “join the club.” The focus was high quality, low prices, and special bulk sizing, attracting small business owners, as well as high-end consumers with money to spend on stocking up. The sector is also quite popular for its “treasure hunt” appeal — club customers just love to search the wide warehouse aisles for limited-time bargains that are not regularly advertised. SKU selection is limited, however; very competitive pricing on multi-packs and “treasures” has led to high-volume purchases. The average shopping ring is now $87, up from $82 five years ago, according to ACNielsen, and it is not uncommon to hear shoppers say, “I can’t leave the club without spending a hundred dollars” (or hundreds of dollars).

After more than half a dozen clubs hit the scene in its earliest days, the channel has consolidated down to three major players today: Costco, Sam’s Club, and BJ’s. All of them have increasingly expanded their store count over the years, but Costco is currently most aggressive with its recent announcement that expansion plans call for a total of 700 stores.

A criticism of the channel has to do with its “bifurcated business model,” and the confusion it could bring to its dual consumer targets.

“Basically, two-thirds of the channel’s volume comes from middle- and upper-income consumers, and one-third comes from small businesses,” maintains researcher/consultant Frank Dell, CEO of Stamford, Conn.-based Dellmart & Co. “Because of the continued growth of chains in all segments, it’s getting increasingly difficult for the small business/retailer to stay in business. Small businesses are not dead, but the club stores are going to have to get smarter and redefine their markets as to who they’re serving to be successful. Right now, I see BJ’s going one way with it, Sam’s going another, and Costco going another.”

The positive flip side to the situation is that initially, club stores “kind of replaced the traditional wholesalers of old, only they did it more efficiently and at better price points,” according to one anonymous analyst.

Assuming that clubs will want to focus primarily where the volume is — with the end consumers — some mainstream merchandising could be wisely incorporated as the channel moves forward. One of the most obvious departments for this is confections.

“Sometimes those big tubs of chocolate-covered raisins and licorice sticks are just too much for instant consumption,” quips Jenn Ellek, director of trade communications and marketing for the National Confectioners Association. “There are opportunities for smaller sizes in warehouse clubs to appeal to the consumer who doesn’t want to stock-pile snacks and candy,” she explains. “The most important thing is that this can be done without trending down dollars. It’s additional business.”

Using findings from a recent NCA/Dechert-Hampe report, “Expanding the Dimensions of Confectionery, A $10 billion Opportunity,” Ellek maintains that if the channel were to sell front-end candy, for instance, “they would increase their confectionery sales by 25 percent.” She adds, “Consumers checking out would be attracted to single packs of candy just like they would anyplace else. It’s a very large opportunity.”

Other ideas for club confections include “better signage in the aisles that house candy and adding selection and price points,” according to Ellek.

Besides better candy sales, there’s an even more macro reason why the channel may wish to rethink some aspects of its positioning. “Their whole reason for being is to serve their members, but their members are changing gradually, and they may want to start thinking about having differentiated packages and sizing,” says Anthony Raissen, president of marketing consulting company InterQuantum, LLC, based in Encino, Calif.

“The jury is out on the whole portion-control craze, but it’s important for all manufacturers and retailers to keep an eye on what makes sense for today’s lifestyle and what consumers are actually buying,” adds David Fields, managing director of Ascendant Consulting, LLC, based in Ridgefield, Conn. Boomers, especially, are predicted to “downsize” as they grow older. “Less-is-more” packaging and pantry loads will most likely be part of that equation.

Another threat to the channel is the saturation of its stores. “You need X amount of population and Y amount of miles from consumer to the store — it’s generally around 100,000 people living within a 15-mile radius to the store — and there is a point where it’s not going to pay for them to build any more,” says Dell.