Wendy Leung rarely saw durian in grocery stores growing up in Los Angeles, but the 45-year-old nonprofit worker found the fruit at her local Costco Wholesale in San Fernando Valley this April. Durian is used in Southeast Asian cuisines and is known for its strong scent.
"When I saw it in Costco, it just made me laugh that durian has gone mainstream," said Leung, who was born in Hong Kong. "I've definitely been noticing more Asian products at Costco lately."
Asian Americans are the fastest-growing demographic in the U.S. They're also a disproportionate number of Costco's customers. Asians comprise about 7% of the U.S. population, but make up 11.9% of Costco shoppers, according to market research firm Numerator.
Costco's dominance among Asian American consumers bodes well for the warehouse retailer's longer-term growth trajectory — and carries implications for other retailers as the industry evolves alongside a diversifying United States.
"There's opportunity to take what were once held as niche or minority markets and put them central to U.S. trends," said Kymberly Graham, head of diversity initiatives at consumer intelligence firm NielsenIQ.
"For Asian Americans, their rate of population acceleration certainly lends to this idea that ... they're going to be creating major market shifts. If their needs are being served, it inherently becomes very profitable for anyone that's serving them," Graham said.
A $13 billion opportunity
The rapid growth and purchasing power of Asian Americans make the group a formidable consumer base for retailers. The Asian population in the U.S. jumped 81% from 2000 to 2019, compared with the overall population's 16% growth, according to the Pew Research Center. Asian Americans have the highest median household income in the U.S. — though the demographic also has the greatest intragroup economic disparity in the country.
The untapped sales potential of Asian American consumers tallies to $13 billion, according to NielsenIQ.
On average, Asian Americans exhibit some shopping habits that differ from those of other consumers, NielsenIQ found. Households of Asian descent tend to be larger than those of the overall U.S. population. Asian Americans are more likely to buy in bulk and seek bargains. As a result, Asian consumers are more than twice as likely to shop at warehouse clubs than the average U.S. consumer.
Costco declined to comment directly on inventory and consumer strategy as it relates to Asian shoppers. "Regardless of the products we sell, Costco's buying philosophy is the same: Research the marketplace, determine the variety of products our members are interested in, and negotiate an exceptional value on quality products and services," Costco management told CNBC in an email.
The warehouse retailer famously does not spend any money on advertising, but word of mouth can cultivate brand affinity among different communities, said Marshal Cohen, chief industry analyst for market research firm NPD Group.
"Every once in a very blue moon would you hear about a major retailer focused in on the Asian community," Cohen said. "Word of mouth and the influence of the community spreads, and that's what helps elevate a business. So if a business like a Costco caters to the Asian community, they share that out and that multiplies out."
Cindy Zhou, 50, first heard about Costco from a friend who is also an immigrant from China. Zhou became a Costco member around 2013 and now shops weekly for food, household products and gas at her local warehouse in greater Cleveland.
"Almost all my friends have Costco memberships," said Zhou, who works in information technology. "I like Costco because they have very good quality at a much lower price than other grocery stores."
Zhou and other Costco shoppers noted their local stores have added specialty Asian items such as boba ice cream bars, lap cheong and oyster sauce to their rotating inventory in recent years. She recalled seeing displays for Chinese holidays Mid Autumn Festival and Lunar New Year at Costco in the past year. Leung's warehouse in California sells poke bowls.
Asian American consumers can find food products of their diaspora at local ethnic grocers and Asian supermarket chains such as H Mart, 99 Ranch Market and Patel Brothers. But seeing those products at one of the largest retailers in the world is rare.
With a market value of $185 billion, Costco reported $195.93 billion in total revenue in 2021, up more than 17% from the prior year. The company is scheduled to report its latest results after the market closes Thursday. Its shares are down more than 20% so far this year.
Zhou said when she or a friend spots an Asian product at Costco that they would normally see only at an ethnic store, they tell others about it in group chats on Chinese messaging app WeChat.
'A lot of Costco love'
Jing Gao, founder of hot sauce brand Fly By Jing, is a big Costco fan as a consumer, so when she got the opportunity to pitch to Costco buyers, she jumped at the chance.
"I'm obsessed with Costco. I go any chance I get," Gao said. "There's just something great about discovery ... not knowing what deals you're going to find."
Fly By Jing started as an online-only direct-to-consumer business before expanding to retailers such as Whole Foods, Target and now Costco. The brand launched its Sichuan chili crisp product in Costco stores in the Los Angeles and Hawaii region in February. Just months later, Fly By Jing has already expanded to, or is in the process of entering, the Northeast, Bay Area, Pacific Northwest, San Diego and Texas markets. The company plans to roll out its Zhong dumpling sauce at Costco as well, starting in LA later this year.
An Instagram video announcing the Costco launch has become Fly By Jing's highest performing post on the social media platform. The video currently has roughly 85,000 views, almost 7,000 likes and nearly 600 comments.
"Clearly there's a lot of Costco love," Gao said.
One customer who bought Fly By Jing at Costco is Leung.
"I would give kudos to Costco for thinking about what young people want, what's in," Leung said. "You start developing a loyalty."
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