My apologies in advance to those readers who are not COSTCO members, for whatever reason. Many folks I know live out of range of a store, and I comfort them when I can.
But I also wax enthusiastic about the place. I was first drawn to it because of reports that COSTCO paid store workers well above the other big box rates, yet still managed to have good prices and stay seriously profitable; almost a capitalist dream-come true. Wall St. likes it, and those reports seem to be accurate.
But a big box store, however well-paying, is still a big box store; which is not my favorite environment. Yet COSTCO knows that, and has psyched out ways to draw in folks like me. And the main way to my heart, these days (as of old, for that matter), is through my tummy.
Here, COSTCO’s slimmed-down version of a food court is a winner. And the company aims to keep it that way.
The heart of its menu is big hot dogs; the soul is pizza. There are a couple other items, tho they move much more slowly. But the dogs are big, the pizza is bigger, and comes in any combo you want, as long as it’s cheese or pepperoni. (You can get some frozen yogurt if you’re feeling flush; otherwise, a bottle of very cold water is a quarter.)
And the dog plus a soda is a buck-fifty flat. A whole large pizza, on which they’re not stingy with toppings, is $10; you’d pay $20 or more at the chains.
This is not cuisine for Whole Foods picky eaters (tho COSTCO carries plenty of organic stuff too). Instead, it’s an inflation-fighter’s feast for less than two bucks, or two-three big gooey pieces each for a family of four, a budget banquet at barely a buck a slice.
I read a clip that said the hot dog price goes back to the 1980s, when COSTCO was just starting out. It figures; the dog is not only a cheap meal: it’s an icon, a sacred edible object.
Normally, icons are not to be messed with; but “Hello, COSTCO, meet your new neighbor. He’s in a hot new band: N. Flation and the Supply Chain Stickups. You’ll be hearing a lot from him.”
True enough, lots of prices at COSTCO have gone up. But as of the end of July, their CEO is holding the line on lunch:
In a July 25 interview on CNBC’s “Squawk on the Street,” CEO Craig Jelinek had a one-word answer when asked whether he would raise the signature food court item’s price: “No.”
Costco has continued to put up strong sales, even as other retailers have spoken about consumers becoming more budget-conscious and spending more on services instead of goods. It’s also avoided another recent problem for many retailers: excess inventory that’s racked up in warehouses and stores, which must now be packed away or marked down.
Yet amid nearly four-decade high inflation, Costco has raised the prices of some food court staples. Earlier this month, its chicken bake jumped from $2.99 to $3.99 and its 20-ounce soda rose by 10 cents to 69 cents. That prompted speculation that its hot dog’s super low price could be due for a hike, too. The hot dog and soda combo . . . was the subject of a Mental Floss article from 2018 that recently began circulating again.
The article recounts a time when Jelinek approached Costco co-founder and former CEO Jim Sinegal. He told him the company was losing money over the iconic food item.
“I came to (Sinegal) once and I said, ‘Jim, we can’t sell this hot dog for a buck fifty,” Jelinek said, according to the Mental Floss article, which cites 425Business. “We are losing our rear ends.’ And he said, ‘If you raise (the price of the) effing hot dog, I will kill you. Figure it out.’ That’s all I really needed.”
Another aspect of Costco’s business has also been under scrutiny: When its membership fee might increase. Costco membership costs $60 a year or $120 a year for an executive membership, a higher-tier option that includes additional discounts and perks.
The vast majority of Costco’s profit comes from the annual fees rather than from selling items. It has historically raised it every 5½ years and the last increase was in June 2017, putting it on track for a rise soon, according to Corey Tarlowe, an analyst at Jefferies. Its membership fee typically increases by $10.
Jelinek told CNBC that a membership fee hike is “not on the table right at the moment.”
“I made it very clear,” he said. “I don’t think it’s the right time. Our sign-ups continue to be strong.”
Note that Jelinek didn’t mention pizza. But this weekend when I came in, it was the same price too, and still just as gooey greasy good.
Of course, their strategy is obvious: we come for the cheap dogs & pepperoni, and stay for less dramatic bargains on organic tofu bits, computers and couches.
Taking on inflation is a kind of trench warfare, and few emerge unscathed. Checking mine against the menu marquee, it seemed clear that while the dog was as big, the bun was an inch or maybe two shorter. Plus, the chopped onions, which I used to heap on and call salad, are gone.
But war is hell. In a battle of inches, they’re fighting the good fight. Add in a well-paid and highly efficient staff, and COSTCO works for me.
PS. I did not get paid for this rave review.