Costco's former CEO says company's culture is its foundation

ISSAQUAH, Wash. — Craig Jelinek stepped down from his position as chief executive officer at Costco Wholesale Corp. on January 1 after leading the company for 12 years. Only the second CEO in the history of the company, which opened its first membership warehouse club in September 1983 and celebrated its 40th anniversary in 2023, Jelinek not only sustained the legacy of his predecessor, cofounder Jim Sinegal, but also propelled Costco to new heights.

When Jelinek took over as president and CEO in January 2012, Costco had wrapped up its most recent fiscal year with 592 warehouse clubs, including 429 in the United States and Puerto Rico, 82 in Canada, 32 in Mexico, 22 in the United Kingdom, nine in Japan, seven in Korea, eight in Taiwan and three in Australia. Net sales for the 52-week fiscal year 2011 were $87 billion.

Costco now operates 871 warehouses — including 600 in the U.S. — and it has expanded its international presence to include warehouse clubs in China, France, Iceland, New Zealand, Spain and Sweden. And during Jelinek’s tenure, the company’s revenues more than doubled, from $99 billion in 2012 to $242.3 billion in the latest fiscal year.

In recognition of his long career at Costco, and his accomplished leadership of the successful company over the past dozen years, MMR is recognizing Jelinek with its Lifetime Achievement Award.

Jelinek’s leadership philosophy is deeply rooted in Costco’s unique corporate culture, which emphasizes employee welfare, customer satisfaction and operational efficiency.

In an interview with MMR conducted just a year after taking over as CEO, Jelinek said Costco’s success was largely due to the value system established by Costco cofounder Sinegal, who, like many Costco executives (including Jelinek himself) was influenced by retail industry pioneer Sol Price.

“We’ve got a great value system that says always do the right thing, obey the law, do right with your customers, do right with your employees, do right with your suppliers, and all good things are going to happen for your shareholders,” Jelinek says. “We haven’t drifted from that model, and it’s instilled in everyone in this system: do the right thing.

“The value system is going to be what keeps this company going for the next 25, 50 or 75 years. There will be a time when we have a couple of bad years, and if we change our value system be- cause of that, the bad years will continue. That’s what I instill. Don’t lose your soul.”

Known for paying its employees well above the industry average, Costco boasts one of the lowest employee turnover rates in retail. Jelinek believes that well-compensated, happy employees deliver better service, driving customer loyalty and, in turn, sustained profitability.

“That’s been the culture of the company since day one,” Jelinek said during a recent TV interview. “You’re only as good as everyone around you. We don’t want to turn over a lot of employees, and people deserve to have good wages and good benefits. And we’re not a margin business — we just want to sell a lot of stuff and that’s what we do. That’s the way we run our business, and that’s the way we’ll always run our business.”

Jelinek has been similarly committed to the company’s no-frills warehouse model, where a limited assortment of bulk goods are sold at razor-thin margins to members who pay an annual fee.

The company’s relentless pursuit of efficiency, from logistics to in-store operations, allows it to pass savings on to its members, a strategy that Jelinek has tirelessly championed. Costco’s culture, often described as defiantly unorthodox, doubles down on what it does best: delivering quality products at unbeatable prices.

Costco’s commitment to low prices is reflected in the $1.50 price the warehouse club operator charges for its hot-dog-and-fountain-drink combo, a price that hasn’t changed since the combo was introduced in 1985. Similarly, Costco has gone to great lengths to keep its rotisserie chicken priced at just $4.99, opening its own $450 million poultry complex in Nebraska in 2019.

Jelinek’s Costco has been a testament to the power of a simple, consistent and customer-focused strategy. The company’s success under his leadership proves that in an age of endless consumer choices, the principles of good business remain constant.

Jelinek’s approach has not only driven Costco’s financial success but has also earned it a special place in the hearts of its members and employees alike. The company’s commitment to social responsibility, environmental sustainability and community engagement further solidifies its reputation as a corporate leader with a conscience.

His leadership and the culture he has nurtured and preserved stand as enduring pillars of the company’s ongoing success. With a clear vision and steadfast values, Costco, under Jelinek’s leadership, has been more than just a retail chain; it’s a case study of how a commitment to people, principles and pragmatism can pave the way for enduring business success.

That model is not expected to change with Jelinek’s retirement. Costco’s leadership expects the next decade to unfold much the way the last one did, with the company’s unique culture and business model delivering continued success and growth.

“The reality is, we’re staying the course,” Costco chief financial officer Richard Galanti said in response to a question about the change in leadership that came up during the company’s most recent conference call.

Galanti said he remembered people asking, “Who can replace Jim?” back in February 2010 when Jelinek was named Costco president and chief operating officer, and again in January 2012 when he succeeded Sinegal as CEO.

“And I think the same questions are being asked today — who could replace Craig? And it really is a seamless transition,” Galanti said.

He pointed to the similar career trajectories of Jelinek and his successor, Ron Vachris.

When he was announced as Sinegal’s successor, Jelinek was a Costco veteran who had spent nearly 28 years with the company, starting as a warehouse manager in 1984 and going on to serve in every major role related to Costco’s business operations and merchandising activities. After being named president and COO, Jelinek worked closely with Sinegal for about two years before succeeding him as CEO.

“Costco has a very strong culture and a deep bench of management talent,” Sinegal said when that succession was announced. “I have total confidence in Craig’s ability to handle his new responsibilities and feel we are fortunate as a company to have an executive of his caliber to succeed me as chief executive of Costco.”

Similarly, when Vachris was promoted to president and COO of Costco in February 2022, he was a longtime company veteran, having started his career as a forklift operator at a Price Club outlet in 1982. He subsequently rose through the ranks, holding a series of management positions and working along the way with both of Costco’s cofounders, Sinegal and Jeff Brotman. And in his most recent posts, Vachris has worked closely with Jelinek on keeping the company moving forward while staying true to its founding principles.

Jelinek and Vachris made that point in the letter to shareholders they co-authored last month in Costco’s most recent annual report.

“Forty years ago this past September, the first Costco warehouse opened in Seattle, the two executives wrote. “We grew to nearly $3 billion in sales in less than six years. Our operating philosophy then and now remains simple: Provide our members quality merchandise and services at the lowest possible prices. We achieve this through our commitment to carrying out our mission statement and adhering to our code of ethics.

“The successes and challenges we faced in fiscal year 2023 reinforced the foundational business model of Costco, focusing on the most productive items and bringing quality goods to market in volume. Although we experienced inflationary pressures and general economic uncertainties, our buying and operations staff ensured that quality and value remained priorities.”

Galanti noted during the conference call that seeing Vachris and Jelinek work together in the nearly two years since Vachris became president was much like what he saw during the two years between when Jelinek became president to when he succeeded Sinegal in the CEO role, and reiterated his view that the leadership transition will be seamless. “That’s pretty much it — steady as she goes,” he said.

Jelinek himself expressed a similar opinion when asked his views about the succession.

“Ron’s been with the company for 40-plus years,” Jelinek said. “He’s been in every position — he’s run real estate, he’s run buying, he’s run operations, he’s been president for the last two years. And he will take the company even further in the future.”