Inflation has affected almost everything over the last two years, including Trader Joe’s 19-cent banana. However, Costco’s hot dog-and-soda combo price remains unchanged.
Costco’s hot dog deal, available in its food courts, remains at $1.50, the same price as in 1985, before the Great Recession, the housing crisis, the pandemic, and the most recent about of decades-high inflation.
Why Is Costco’s Hot Dog Still $1.50 When Everything Has Become So Expensive?
According to the Bureau of Labor Statistics, consumer prices have increased about 20% since the pandemic began. Many crucial industries, such as housing and groceries, have seen even higher price increases.
If Costco’s hot dog sale had kept up with inflation, it would be three times as expensive now, nearly $4.50. But Costco’s $1.50 combo is a deliberate decision, also known as a loss-leader: The firm is willing to lose money selling the hot dogs at that price — inflation be damned — as long as it helps Costco attract and retain consumers.
“It’s branding,” explained Scott Mushkin, a retail analyst at R5 Capital. The $1.50 offer fosters client loyalty, he noted. “It reminds customers of who Costco is.”
Costco loses money on more than 100 million hot dogs yearly, but it counters these losses by raising prices on other products. Costco has raised the prices of pizzas and other goods in its food courts.
However, Costco has a unique business plan allows it to keep costs low: it makes almost all of its money from memberships, selling things on its warehouse floor for practically cost – and occasionally less.
In a recent interview, Richard Galanti, Costco’s longstanding financial chief who retired this month, stated that the $1.50 pricing was “probably safe for a while.”
Why Is Costco’s Hot Dog Still $1.50 When Everything Has Become So Expensive?
declining inflation and declining prices
Most businesses need the benefit of a membership model like Costco. They can’t afford to sell the majority of their items for a small profit — or to lose money on products that sell 100 million units each year.
Inflation has fallen significantly since its peak of 9.1% in June 2022. To reduce inflation, the Federal Reserve implemented 11 severe rate hikes designed to crush demand and discourage spending.
According to the Bureau of Labor Statistics, total consumer prices increased by 3.2% in February.
While we may want reduced prices, decreasing prices are a red flag indicating that the economy is in bad shape. We’re not there yet, so don’t worry.
Companies have reported unusually high profitability in recent months owing to strong consumer spending. Even when companies like Costco must hike prices (even on hot dogs in some circumstances), Americans continue to spend.
Consumer spending is the most powerful engine driving the US economy. When individuals spend less money, firms prefer to lay off employees, which can lead to even lower spending and more layoffs. This cycle has the potential to drive the economy into a recession, but again, this is not occurring yet.
“A lack of demand causes price declines. “That means we’d be in a recession,” said Gus Faucher, chief economist at PNC.
“If you raise the effing hot dog, I will kill you.”
Costco’s hot dogs fought inflation from the outset.
Costco’s hot dog offering originated in the company’s early days. Costco added a Hebrew National kiosk to its second warehouse store in Portland, Oregon, shortly after it opened in 1983.
To keep hot dogs’ pricing consistent, Costco found ways to cut other costs in the food court, such as switching from 12-ounce soda cans to cheaper 20-ounce fountain drinks.
Why Is Costco’s Hot Dog Still $1.50 When Everything Has Become So Expensive?
Costco sold kosher hot dogs in its food courts until 2009 when meat supplies began to run low. Recognizing the value of low-cost hot dogs, the business moved production in-house and launched its Kirkland Signature brand. Costco’s factories generate around 388 million non-kosher hot dogs annually for both food courts and retail sales.
Jim Sinegal, Costco’s co-founder, famously threatened former CEO Craig Jelinek, “If you raise the effing hot dog, I will kill you.” “Figure it out.”
“I know it sounds crazy making a big deal about a hot dog, but we spend a lot of time on it,” Sinegal told the Seattle Times in 2009. “We’re recognized for our hot dogs. That is something you do not mess with.
Last year, Costco sold over 130 million hot dog-soda combos worldwide, totaling around $195 million.
SOURCE – (CNN)
