Costco relies on a surprising perk to engage its executive members and keep them hooked on their $120-a-year subscription: The Costco Connection monthly magazine.
Costco mails out the Connection to executive members every month for free. The magazine features cooking recipes, offers from Costco’s travel and auto services, electronics and book reviews, ads for its Kirkland Signature private-label products, and a range of home, health and lifestyle original content.
The magazine is no stunt. Like Costco’s popular $4.99 rotisserie chickens and $1.50 hot dogs at food courts, the Connection is emblematic of Costco’s strategy to stand out against Amazon (AMZN) and Walmart (WMT) by offering members distinct services and products. Costco also offers home and life insurance, a mortgage program and advice on their next vacation.
Executive members make up 40% of Costco’s total member base, and they are typically Costco’s best customers. They shop more frequently than other customers and spend more when they visit stores, according to the company.
Recruiting new members every year and convincing existing ones to renew their annual subscriptions are “essential to our business,” Costco (COST) says in its annual filings. Costco (COST) gets roughly three-quarters of its profit through membership fees.
Costco publishes the Connection to give members a “sense of belonging to the store” and alert them to “what’s new, what’s interesting and fun,” said Mike Winkleman, president of Leverage Media, who has written about the magazine.
The Connection has a circulation of around 14.3 million copies per edition, up from 12.2 million in 2016, as Costco has grown its executive membership program. That makes it America’s fourth-highest distributed magazine behind two AARP publications and Parade, the publication distributed in Sunday newspapers, according to leading magazine auditing firms. (Costco’s magazine, which averages around 140 pages a month, is also available for non-members for free online and through an app. But the online readership is a small fraction of the print readership.)
Over the years, the Connection has gained a pop culture status, mentioned on shows like “Family Guy” and “Jimmy Kimmel Live!”
“The celebrity covers resonate with our readers: Elton John, Rachel Ray and Henry Winkler,” said Tim Talevich, the Connection’s editorial director. “The food stories, both on the cover and in our ‘For Your Table’ section, are always popular. Travel Connection, highlighting places served by Costco Travel, is one of our most-read features “
The Connection also drives sales. More than half of the magazine’s subscribers buy a product because they saw it mentioned in Costco Connection, according a 2017 reader survey by market research firm GfK MRI that Costco often cites.
Sales of some Costco products have jumped 30% after an ad or a story appears in the Connection.
“I threw out the Costco Connection at first,” said Connor Bryant, a Costco executive member in Virginia. But after flipping through it once, he “realized it was a good way to spot deals.”
“Now I usually scan it when it comes, and if I see a good deal on something I usually buy, I make a point to put it on my list.”
Trips to Antigua
The Connection started out as a newsprint publication and converted to a magazine in 1997.
The magazine’s nondescript offices are located at Costco’s headquarters in Issaquah, Washington, next door to Costco’s marketing and membership teams. Around 30 people are on staff, covering editorial, graphic design, production, circulation and advertising. Some of the reporters have newspaper and script-writing backgrounds.
Working at Costco has “kind of a lunch-pail mentality,” said Talevich, the editorial director. “It’s the same thing with the Connection. We just try to play our role.”
The Connection has feature stories about Costco’s business strategy, interviews with company suppliers and profiles of members. The “treasure hunt” section describes the latest finds at Costco, such as Kirkland Signature organic dried mangos, Lego building sets and the travel division’s newest offering: an all-inclusive trip to Antigua.
“They have a lot of stories to tell because merchandise is always rotating” at Costco, said Winkleman, the president of Leverage Media.
Tide and Cheerios ads
The Connection is funded through advertising dollars.
Top brands such as Procter & Gamble (PG), General Mills (GIS), Kimberly-Clark (KMB) and others say they are eager to advertise in the Connection to get their products in front of wealthy Connection readers, more than 90% of whom own their homes and have attended college, according to Costco. The median age for a Connection reader is 58 and a reader’s median household income is $119,000.
“Costco Connection allows us to reach tens of millions of engaged Costco members who view it as a trusted, helpful source of information,” said Damon Jones, spokesperson for P&G.
There is a section in the Connection called “Buyer’s Picks,” where Costco’s merchants recommend products. “This credential can be a powerful boost” for P&G’s products, Jones added.
“We’re reaching them a time when purchase intent is high,” said Bryan Donaldson, executive vice president of sales at Pharmavite, the owner of Nature Made vitamins and supplements.
The magazine has a mix of co-op advertising— where Costco and a supplier split part of the cost for an ad — and others that national brands take out. (A full-page color ad costs upwards of $200,000, similar to the cost of an an ad in AARP’s magazine, but cheaper than a spot in People.)
Costco says the Connection is profitable. But it’s expensive to operate: Printing, shipping and other costs add up quickly.
“Few other retailers have tried to produce a magazine at this scale, probably because it requires a lot of work if done in-house and it can be very expensive if outsourced,” said Paul Latham, Costco’s membership, marketing and services’ director. Costco utilizes a number of tactics to reduce costs, including renegotiating print contracts and streamlining postal routes, he said.
Trader Joe’s podcast
Other chains have tried to replicate Costco Connection’s success with mixed results.
Ahold Delhaize, the owner of Stop & Shop, Food Lion and Peapod, has Savory magazine, which it launched in 2015. Dollar Shave Club, the razor subscription service, started Mel, also lifestyle and culture magazine, in 2015. Sam’s Club magazine, The Healthy Living Made Simple Magazine, ended print copies in 2018, but is still available online.
With the decline of print magazines, some grocers have started to venture into podcasts, too.
Trader Joe’s launched Inside Trader Joe’s, a five-part podcast series, in 2018. This year, Giant Foods and Kroger both announced new podcasts. Kroger’s Noshtalgia podcast will offer listeners a “culinary trip down memory lane.”
Costco says it has no plans to start a podcast. It’s sticking with its old-fashioned Connection magazine.