Buzz
At one point, Costco's longtime president W. Craig Jelinek expressed concern to Jim Sinegal, Costco’s co-founder and former CEO, that the company’s colossal warehouse business was losing money on its iconic $1.50 hot dog and soda combo. Sinegal listened, nodded, and then made his position perfectly clear.
“If you raise [the price of] the damn hot dog, I will kill you,” Sinegal declared. “Figure it out.”
Taking his boss’s firm words seriously, Jelinek—who succeeded Sinegal as CEO in 2012—has kept the price of Costco's hot dog steady. Remarkably, the combo has been sold for $1.50 since its introduction in 1984. Adjusted for inflation, it should now cost around $4.25. Yet, the quarter-pound, all-beef hot dog and 20-ounce soda combo defies both economic principles and the whims of food distributors. How does Costco pull this off?
Costco doesn't set the price of their hot dogs based on market trends. Instead, they establish their price based on their own expenses and the value they believe the hot dogs bring to the company.
Jelinek suggests that people might be willing to spend $1.75, and potentially more, for the combo. However, is an additional 25 cents really worth more than the lasting goodwill and steady stream of customers that have been loyal to the combo for nearly four decades? Probably not. Shoppers leave Costco happy and satisfied after enjoying a hot dog meal, and many even recommend Costco food courts as ideal spots for a first date. This kind of positive sentiment is more valuable than keeping up with inflation.
To keep the food court's signature offering at a consistent price, Costco faced a crucial decision in 2009 when rising supply costs loomed. They stopped using Hebrew National hot dogs, which they had relied on since 1984, and brought hot dog production in-house by building a Kirkland's Signature plant in Los Angeles. When demand increased, they expanded with a second plant in Chicago.
Costco also worked to control costs on the beverage side. When their agreement with Coca-Cola was set to increase the price, Costco decided to switch to Pepsi in 2013, ensuring the $1.50 price for their soft drinks would remain unchanged.
At times, Costco has to find other ways to recover lost profits. In 2022, they raised the price of their chicken bake and soda combo from $2.99 to $3.99. Then, in 2023, some customers expressed annoyance at the introduction of a $9.99 roast beef sandwich.
In light of the backlash following their recent price hikes, Costco must tread carefully when considering any increase in the price of their hot dog deal. Since it's such a visible part of their business, raising the price could signal to customers that other Costco items might also be getting more expensive. Any extra revenue from the hot dogs could easily be overshadowed by negative publicity.
Costco isn't the only player in this game, however. In 2022, Sam’s Club reduced the price of a similar combo meal from $1.50 to $1.38, clearly aiming a competitive jab at Costco. They also increased the soda size, from 20 ounces to 30 ounces. In August 2023, Sam’s Club CEO Kath McLay announced that the success of their hot dog combo had significantly boosted the company's profits.
However, no hot dog deal has the same cultural prestige as Costco's. The company now sells over 100 million hot dogs every year, a number that surpasses the total sold across all MLB stadiums combined. Costco continues to find ways to fine-tune their offer, even adding a single cent’s worth of value. When California introduced a soft drink tax, which would have raised the price for customers, Costco outlets in the state switched to offering Diet Pepsi in place of regular sodas, as diet drinks were exempt from the new law. Costco’s “effing hot dog” is likely to remain a bargain for the foreseeable future.
Perhaps for an even longer period. In late 2022, CFO Richard Galanti was asked how long Costco could keep their hot dog deal at its current price.
“Forever,” he replied.
This article was first published in 2018 and has been refreshed for 2023.
