Costco Hot Dogs Tell a Story

Investors were worried about the hot dogs.

During a Q4 earnings call, Costco CFO Richard Galanti was asked if the big box retailer was going to increase the price of its iconic $1.50 food court hot dog combo.

Galanti reassured those on the call that the combo price was staying the same.

Costco’s hot dog deal is an oft-cited example of a loss leader – a product sold for less than it’s worth to attract customers. The idea is if you can get people in the door for the hot dogs, they’re likely to spend money on other items. Costco’s rotisserie chicken is another great loss leader example. Even an Amazon Prime subscription is designed to get people “in the door” and defaulting to Amazon’s offerings.

By maintaining the price for so long, the Costco hot dog, like the 99 cent can of Arizona iced tea or the $1 pizza slice, has become an economic bellwether in its own right.

Change the Price, Change the Narrative

Adjusted for inflation, the hot dog and soda should cost about $4 today. Yet the price hasn’t changed since 1985. Costco is fiercely protective of the hot dog’s price point. Allegedly, founder Jim Sinegal once threatened the company CEO, saying, “If you raise the [price of the] effing hot dog, I will kill you.”

But for Costco, the mythic hot dog price is more than a sales strategy, it’s becoming a storytelling device.

With the hot dog question on the earnings call, Costco had a chance to shape the narrative. Yes, they had increased the cost of other food court items, but not the hot dogs. Inflation has had an impact, but not in a charge-more-for-hot-dogs way. For many brands, cost and pricing structures are part of their brand identity. In 2019, Netflix told shareholders remaining ad-free was a “deep part of our brand proposition.” Earlier this year, the streaming giant launched an ad-supported subscription plan, undoing that promise and creating uncertainty among investors.