If taken Inflation into account Costco hot dog combo would cost $4.11 by now, but you still get it at $1.50. Why exactly Costco is sacrificing so much? Read on.
Price As A Strategy
Jim Sinegal, the co-founder and former CEO of Costco, once listened to W. Craig Jelinek’s complaint that the giant warehouse company was losing money on their well-knownly inexpensive hot dog and Coke bundle for $1.50, nodded, and then tried his best to make his position on the matter crystal clear.
“If you raise [the price of] the effing hot dog, I will kill you,” Sinegal said. “Figure it out.”
Jelinek, Sinegal’s replacement in 2012, took his advice to heart and has never raised the cost of the Costco hot dog. Quite astonishingly, the price has remained constant at $1.50 ever since the shopping club initially presented the dogs to clients in 1984. The 20-ounce Coke and quarter-pound, all-beef tube seem impervious to inflation and unaffected by the whims of food distributors even in 2022. What method does Costco use?
Simple. Costco doesn’t set its prices for hot dogs based on what the market would tolerate. They set their prices in accordance with their own costs as well as the affordability of the hot dogs.
Jelinek predicted that consumers would spend at least $1.75 on the offer. But would that extra 25 cents be worth more than the goodwill and foot traffic brought about by a combination that has maintained its pricing for almost 35 years? Most likely not. The hot dog lunch provides amusement, gratification, and fuel for Costco shoppers. If they receive it right before leaving the store, they will remember how well they were treated. It’s more valuable than simply keeping up with inflation.
Therefore, Costco must continue selling the popular food court item while keeping an eye on its price. The company, which had relied on Hebrew National since 1984 to produce their all-kosher dogs, stopped working with them when supply costs threatened to rise in 2009. Instead, they moved their hot dog production in-house. In Los Angeles, a Kirkland’s Signature hot dog factory was built. They constructed a second factory in Chicago for when they needed to increase production.
Additionally, they had to control soft drink-related costs. Costco chose to partner with Pepsi in 2013 to maintain their iconic $1.50 price sticker after their agreement with Coca-Cola was slated to increase the price.
Currently, Costco sells more hot dogs than all MLB stadiums put together in a single year (almost 100 million). And they keep demonstrating an incredibly high level of proficiency in anything that might add even a single cent to the sale. Costco outlets in the state changed the combo to include Diet Pepsi after California recently passed a soft drink tax that would have increased consumers’ costs. The law does not apply to diet beverages. For the foreseeable future, the business’s “effing hot dog” will remain inexpensive.
Recently some news started to surface of Costco raising it prices due to inflation. But, the chain’s VP of IR clearly stated that they’re not raising the prices of hot dogs.
“Let me just say the price, when we introduced the hot-dog-soda combo in the mid-’80s, was $1.50. The price today is $1.50, and we have no plans to increase the price at this time”, he said.