Some things never change—traffic is always annoying; the rent is alway too high; a Philadelphia sports event will never be chill. And Costco will always offer its signature hot-dog-and-drink combo for $1.50, the same price it’s been for nearly four decades, regardless of who heads the retailer or what else it sells.
The legendary wiener, along with Costco’s nearly-as-famous $5 rotisserie chicken, are “foundational” to the warehouse chain’s success, Richard Galanti, who recently stepped down as chief financial officer, told Fortune’s Phil Wahba in a recent deep dive into the warehouse club’s stunning success.
Previously, Galanti told the Wall Street Journal the $1.50 price was “sacrosanct,” and declared to investors that the dogs’ price point would stay fixed “forever.”
Galanti’s successor as CFO, Gary Millerchip, this week reiterated that commitment. “I also want to confirm the $1.50 hot dog price is safe,” Millerchip told CNN reporter Nathaniel Meyersohn, according to an X post.
In fact, Costco will overhaul its entire hot-dog supply chain before it will raise the price of the dog. When Costco introduced the $1.50 combo in 1985, it sourced its kosher beef dogs from Hebrew National. But by 2009, costs had gone up so much that the warehouse club brought production in-house. It built a plant outside Los Angeles to produce Signature Kirkland hot dogs (not kosher), and later expanded production to add a second plant in the Chicago area.
Same thing with the soda part of the combo: When Costco’s contract with Coca-Cola was up for renewal a decade ago, the retailer instead switched to Pepsi to save on prices. To avoid San Francisco’s tax on sugary drinks, Costco chose to serve only diet sodas or unsweetened tea in its food courts.
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 that the price of the money-losing dogs should be raised.
“I came to (Sinegal) once and I said, ‘Jim, we can’t sell this hot dog for a buck fifty. We are losing our rear ends,’” Jelinek recalled at a business event near Seattle.
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 reports.
The importance of low prices
But why is it so critical to keep the price frozen at $1.50—what one online user dubbed “the most stable commodity on earth”? After all, Costco has raised plenty of other prices throughout its stores, and periodically adjusts its membership fee upward.
As Galanti explained to Fortune, the price is there to send a message. A $5 chicken and $1.50 dog “signal that Costco is holding the line on low prices.”
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 Cosctco’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.”
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