Costco's hot dog still is $1.50
Adjusted for inflation, the meal would cost $4.50, but the company opts to take a loss
Costco's hot dog deal, sold at its food courts, is still priced at $1.50 — exactly what it cost in 1985 before the Great Recession, the housing crisis, the pandemic and the latest bout of decadeshigh inflation.
Since the pandemic started, prices for consumers have gone up 20% overall, according to the Bureau of Labor Statistics. In many key areas, like housing and groceries, prices have increased even more.
If Costco's hot dog deal kept pace with inflation, it would be three times as expensive today — nearly $4.50. But Costco's $1.50 combo is a strategic decision, known as a loss-leader: The company is willing to lose money selling the hot dogs at that price — inflation be darned — so long as it helps Costco draw in and retain customers.
“It's branding,” said Scott Mushkin, a retail analyst at R5 Capital. The $1.50 deal helps create customer loyalty. It reminds customers of who Costco is.”
Costco loses money selling more than 100 million hot dogs every year, but the company offsets these losses by raising prices on other goods it sells. Costco has increased prices of pizzas and other items at its food courts.
But Costco has a unique business model that allows it to keep prices low: It makes almost all of its money on memberships, selling items on its warehouse floor very nearly at 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.”
Costco's hot dog defied inflation from the very start.
The hot dog offering was born in the company's early days. It added a Hebrew National stand at its second warehouse store in Portland, Oregon, shortly after it opened in 1983.
To keep the price of the hot dog steady, Costco found ways to slash other costs at the food court, such as switching from 12-ounce soda cans to cheaper, 20-ounce fountain drinks.
Costco sold kosher hot dogs at its food courts until 2009, but suppliers started to run low on meat. Realizing the importance of the low-priced hot dog, the chain brought production inhouse and switched to its own Kirkland Signature brand. Costco now produces about 388 million non-kosher hot dogs a year at its plants for both food courts and to sell in packs.
Jim Sinegal, Costco's cofounder, once told the company's 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 known for that hot dog. That's something you don't mess with.”
Last year, Costco sold more than 130 million — about $195 million worth — of hot dog-soda combos globally.