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Costco's food court and its famous hot dog and soda combo meal for $1.50.
new York
CNN
—
Inflation has hit almost everything in recent years – even Trader Joe's 19-cent bananas. But Costco is sticking with its hot dog and soda combo price.
Costco's hot dog offering sold in its food courts still costs $1.50 – exactly what it cost in 1985, before the Great Recession, the housing crisis, the pandemic and the most recent Decades of inflation.
According to the Bureau of Labor Statistics, overall prices for consumers have increased by 20% since the start of the pandemic. In many important areas such as housing and food, prices have risen even more sharply.
If Costco's hot dog deal kept pace with inflation, it would be three times as expensive today – almost $4.50. But Costco's $1.50 combination is a strategic decision known as a loss-maker: The company is willing to lose money selling the hot dogs at that price—inflation be damned—as long as Costco helps to attract and retain customers.
“It’s branding,” said Scott Mushkin, retail analyst at R5 Capital. The $1.50 deal helps strengthen customer loyalty, he said. “It reminds customers who Costco is.”
Costco loses money by selling more than 100 million hot dogs each year, but the company offsets those losses by raising prices on other goods it sells. Costco has increased prices on pizza and other items at its food courts.
But Costco has a unique business model that allows it to keep prices low: The company makes almost all of its money from memberships, selling items in its warehouses at almost cost — and sometimes less.
Costco's longtime finance chief Richard Galanti, who retired this month, said in a recent interview that the $1.50 price was “probably safe for a while.”
Most companies don't have the luxury of a membership model like Costco. They can't handle selling most of their items for very little profit – or taking a loss on products they sell 100 million times a year.
Inflation has slowed significantly since peaking at 9.1% in June 2022. In its fight to reduce this inflation, the Federal Reserve introduced 11 aggressive interest rate hikes to curb demand and discourage spending.
It's working — consumer prices rose 3.2% overall in February, according to the latest data from the Bureau of Labor Statistics.
And while we may wish for lower prices, falling prices would actually be a warning sign that the economy is doing poorly. We're not there yet, don't worry.
Companies reported surprisingly high profits in recent months due to high consumer spending. Even as companies — including Costco — have to raise prices (in some cases even on hot dogs), Americans continue to pay up.
Consumer spending is the biggest driver of the U.S. economy, and when people spend much less money, employers tend to lay off workers, which can lead to even less spending and even more layoffs. This cycle can plunge the economy into recession. That's not happening yet either.
“The reason the price is falling is because people are not buying. That means we would be in a recession,” said Gus Faucher, chief economist at PNC Financial Services.
Costco's hot dog defied inflation from the start.
Costco's hot dog offering originated in the company's early days. Shortly after opening in 1983, Costco opened a Hebrew National stand in its second warehouse in Portland, Oregon.
To keep the price of the hot dog stable, Costco has found ways to cut other costs in the food court, such as switching from 12-ounce soda cans to cheaper 20-ounce soda cans.
Costco sold kosher hot dogs in its food courts until 2009, but suppliers began to run out of meat. The chain recognized the importance of the inexpensive hot dog, moved production in-house and switched to its own Kirkland Signature brand. Costco now produces approximately 388 million non-kosher hot dogs annually at its facilities for both food court and packaged sales.
Jim Sinegal, the co-founder of Costco, once told the company's former CEO Craig Jelinek, “If you mess with the damn hot dog, I'll kill you.” Figure it out.”
“I know it sounds crazy to make a big deal out of a hot dog, but we spend a lot of time doing it,” Sinegal told the Seattle Times in 2009. “We’re known for this hot dog. This is something you shouldn’t mess with.”
Last year, Costco sold more than 130 million hot dog and soda combinations worldwide, valued at about $195 million.
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