Costco Cuts It

Costco's head wine, beer and spirits buyer, Annette Alvarez-Peters, oversees what is almost certainly the biggest alcohol-beverage retail operation in the United States. The store keeps prices low by famously imposing a 15 percent margin cap on all products. Wine gets no special exemption. When the products are name brands, the price tags look enticing. When Costco has a guiding hand in the creation and sourcing of the item, they are often borderline unbelievable. Enter its house brand: Kirkland Signature wines.

Châteauneuf-du-Pape, for example, is one of those wines you really can't find in the U.S. market for $20—unless you shop at Costco. That's the price at which the Kirkland Signature Châteauneuf-du-Pape Cuvée de Nalys hovers. Sourced from the respected Domaine de Nalys, the wine usually scores in the high 80s or, in bingo vintages, even low 90s. Little surprise then that the KS brand for wine and spirits, launched in 2003, has been growing by double digits every year—now up to 4 million cases, Alvarez-Peters told me.

There are some who would turn up their noses at a generic label. Not among them: The many esteemed wineries and winemakers who actually produce the stuff. At first, Costco largely had to settle for bulk wine. "However, we found a lot of inconsistencies in the juice from year to year," said Alvarez-Peters. "Today, the majority of the wine is sourced from name-brand wineries, and now we have developed long-term relationships."

You may have heard of a few of them. Kunde Estate for Sonoma County Old Vine Zinfandel (87 points, $10 for the 2011). Girard Winery makes the Napa Cabernets and blends ($11 to $20, depending on appellation). David Guimaraens, head winemaker of Taylor Fladgate, is behind the KS 10 Year Old Tawny Port ($17). The owners of eponymous Champagne Janisson & Fils and Champagne de Bruyne make Kirkland's brut ($20) and brut rosé ($25), much of it sourced from their own vineyards in Verzenay—a grand cru—and Sézanne.

The Costco team is active in the fields and cellars, inspecting blocks and working with the house winemakers to assemble blends that yield the magic price-to-quality potion for KS. A few recent successes include a $9 Médoc red from "a well-known cru classé producer" at 86 points, a $7 Mendoza Malbec sourced and made by Laura Catena at 87 points, and a very good Côtes-du-Rhône Villages at $7. A Prosecco from the tiny Asolo DOCG dropped last month at $7.

What motivates producers to sign over fruit they could sell under their own label for much more? Big-money contracts and a guaranteed, say, 20,000 cases off their hands certainly entice. Plus, aligning with Kirkland is a nifty way to make a brand "pop" on the shelf over its competitors: "The Costco consumer is very loyal to the KS brand. They will always give the item a shot," explained Alvarez-Peters. (While most partner wineries are not named on the front label, many get a nod on the back label or in Costco's copious promo materials.)

Finally, shrewd vintners realize they do both their own house and their whole appellation a favor by getting them in front of American drinkers who'd otherwise pass. "One of my suppliers tells me the reason they sell us some of the quality appellations at an incredible price is in the hopes we can bring more consumers into the higher-priced category. Some consumers wouldn't purchase a $40 bottle of wine without knowing what the appellation has to offer," said Alvarez-Peters.

Woo the West Village with 3-ounce pours and pairing dinners. Kirkland Signature is how you sell West Fargo on Châteauneuf.

You can follow Ben O'Donnell on Twitter at twitter.com/BenODonn.