That commitment to a rock-bottom price stretches all the way back to the warehouse club’s founder, Jim Sinegal.
As Sinegal’s successor and onetime CEO Craig Jelinek explained back in 2018, he once suggested to Sinegal the price of the money-losing dogs should be raised.
Sinegal’s response: “If you raise the effing hot dog, I will kill you. Figure it out,” Jelinek continued.
“That’s all I really needed,” he said. Bringing production in-house, he added, eventually enabled the store to turn a profit on the popular menu item even at a $1.50 price tag. Today, Costco sells nearly 200 million hot dogs a year from its food courts, Fortune’s Wahba reported.
It’s the same message as sent by Costco’s heavily discounted TV and appliances, strategically stocked by the members’ entrance, as new CEO Ron Vachris told Fortune. “You come in and say, ‘Wait, I can recoup my $60 membership with one item?’ ” he said.
That strategic bolstering of Costco’s reputation helps engender huge loyalty among its 120 million-plus members, and keeps them coming back, retail consultant Kathy Gersch told Fortune. “People tell themselves, ‘Costco has done the research for me, and they know this is the best one,’ ” she notes.
It’s one of the reasons that more than 90% of Costco’s members renew their membership every year. And regardless of how much merchandise Costco sells or what it costs, it’s that membership that truly pays the bills.
“The most important item we sell is the membership card,” Vachris told Fortune. “Everything we do supports that transaction.”
As Wahba reports, the $60 annual membership fee (or $120 for additional perks) made up two-thirds of Costco’s profit in any given year, and in several recent years, the retailer would have posted a net loss were it not for membership fees.
The hot dog’s iconic status means its price is now Costco lore. And the longer the price stays put, the harder it will be to raise it.
“It’s the mindset,” former CEO Jelinek said. “When you think of Costco, you think of the $1.50 hot dog.”
