Some things never change: traffic jams are always annoying; the rent is always too high; A sporting event in Philadelphia is never cold. And Costco will always offer its signature hot dog and drink combo for $1.50, the same price it has for nearly four decades, no matter who runs the retailer or what else it sells.
The iconic sausage, along with Costco’s nearly equally famous $5 rotisserie chicken, are “the backbone” of the warehouse chain’s success, said Richard Galanti, who recently stepped down as chief financial officer. Fortune Phil Wahba in a recent in-depth look at the staggering success of the warehouse club.
Galanti previously told Wall Street Journal the price of $1.50 was “sacred,” And stated investors that the price of dogs will remain fixed “forever.”
Galanti’s successor as CFO, Gary Millerchip, reaffirmed that commitment this week. “I also want to confirm that the $1.50 price for a hot dog is safe,” Millerchip told CNN reporter Nathaniel Meyerson, according to the report X mail.
In fact, Costco will review its entire hot dog supply chain before raising the price of the dog. When Costco introduced the $1.50 combo in 1985, it sourced kosher meat dogs from Jewish National. But by 2009, costs had risen so much that the warehouse club transferred production in-house. He built plant outside Los Angeles to produce Signature Kirkland hot dogs (non-kosher), and then expanded production by opening a second plant in the Chicago area.
The same goes for the soda side of the company: When Costco’s contract with Coca-Cola was renewed a decade ago, the retailer switched to Pepsi instead to save on prices. To avoid San Francisco’s tax on sugary drinks, Costco decided to serve only sugary drinks.carbonated drinks or unsweetened tea in their food courts.
This commitment to the lowest price goes back to warehouse club founder Jim Sinegal.
As Sinegal’s successor and former CEO Craig Jelinek explained back in 2018, he once suggested Sinegal raise the price of unprofitable dogs.
“I came to [Sinegal] one day I said, “Jim, we can’t sell this hot dog for fifty dollars.” We’re losing our asses.” – Jelinek remembered at a business event near Seattle.
Sinegal’s response: “If you pick up that damn hot dog, I’ll kill you. Figure it out,” Jelinek continued.
“That’s all I really need,” he said. He added that introducing in-house production ultimately allowed the store to make a profit on the popular menu item, even at $1.50. Today, Costco sells nearly 200 million hot dogs a year in its food courts. LuckWahba reports.
The importance of low prices
But why is it so important to keep the price at $1.50? dubbed “the most stable commodity on earth”? After all, Costco has raised many other prices across all of its stores and periodically adjusts membership fees upward.
As Galanti explained Luck, the price is for sending a message. The $5 chicken and $1.50 dog “signal that Costco is keeping its prices low.”
It’s the same message as Costco’s deeply discounted TVs and appliances strategically stocked at members’ entrances, new CEO Ron Vakris said. Luck. “You come in and say, ‘Wait, can I pay for my $60 membership with one product?’ ” He said.
This strategic buildup of Costco’s reputation helps engender enormous loyalty among its more than 120 million members and keeps them coming back, said retail consultant Kathy Gersh. Luck. “People say to themselves, ‘Costco did the research for me and they know it’s the best research,'” she says.
This is one of the reasons why more than 90% of Cosctco members renew their membership annually. And no matter how many items Costco sells or how much they cost, it’s the membership that really pays the bills.
“The most important product we sell is the membership card,” Vakhris said. Luck. “Everything we do supports this deal.”
As Wahba reports, the $60 annual membership fee (or $120 for additional perks) accounted for two-thirds of Costco’s profits in any given year, and for the past several years the retailer would have posted a net loss if not for membership fees .
The hot dog’s iconic status means its price is now known to Costco. And the longer the price remains unchanged, the more difficult it will be to raise it.
“It’s a mindset,” former CEO Jelinek said. “When you think of Costco, you think of a $1.50 hot dog.”