When longtime Costco president W. Craig Jelinek once complained to Costco co-founder and former CEO Jim Sinegal that their monolithic warehouse business was losing money on their famously cheap $1.50 hot dog and soda package, Sinegal listened, nodded, and then did his best to make his take on the situation perfectly clear.
“If you raise [the price of] the effing hot dog, I will kill you,” Sinegal said. “Figure it out.”
Taking his boss’s words to heart, Jelinek—who became Sinegal’s successor in 2012—has never raised the price on Costco's hot dog. Incredibly, it has sold for the same $1.50 since the retail club first introduced the dogs to customers in 1984. Accounting for inflation, it should sell for about $4.25. Yet the quarter-pound, all-beef tube and 20-ounce soda combo appears to be immune to basic economics as well as the whims of food distributors. How does Costco do it?
Simple. When it comes to hot dogs, Costco doesn’t price according to what the market will bear. They price according to their own cost and according to the value the hot dogs can afford them.
According to Jelinek, people would pay $1.75, and maybe more, for the deal. But is that extra 25 cents going to be more valuable than the goodwill and foot traffic generated by a combo that’s stuck to its price point for nearly 40 years? Probably not. Customers coming in to shop at Costco are amused, satisfied, and fueled by the hot dog meal. If they get it just before leaving the store, they’re left with a lasting impression of being treated well. Some devotees even suggest that friends go on first dates at a Costco food court. That kind of sentiment is worth more than keeping up with inflation.
That means Costco needs to maintain the food court staple with an eye on a steady price. When supply costs threatened to increase in 2009, the company made a major decision: They stopped using Hebrew National, makers of the all-kosher dog that they had used since 1984, and decided to move hot dog production in-house: a Kirkland’s Signature hot dog plant was constructed in Los Angeles. When they needed to ramp up production, they built a second plant in Chicago.
Costco also had to keep costs on the soft drink side in line. When their deal with Coca-Cola was set to increase the price, Costco opted to sign with Pepsi in 2013, ensuring that their trademark $1.50 price sticker would be kept intact.
Sometimes, the company finds itself trying to make up for lost profits in other ways. In 2022, Costco raised the price of its chicken bake and soda combo from $2.99 to $3.99. An in 2023, shoppers were slightly annoyed at the offer of a $9.99 roast beef sandwich.
Considering the backlash to those price increases, Costco has to be particularly careful about any potential uptick in the hot dog deal. Given it’s such a visible part of their business, raising the cost might signal to shoppers that the price of other Costco products will go up, too. Whatever they gain in hot dog profits might be lost in poor public relations.
Nor is the Costco deal without competition. In 2022, Sam’s Club dropped the price on a similar combo meal from $1.50 to $1.38 in what was clearly a shot across the bow (or bun). Sam’s also upped the soda volume, from 20 ounces to 30 ounces. In August 2023, Sam's Club CEO Kath McLay announced that the success of the processed meat deal helped push significant profits for the company.
But no hot dog meal deal has quite the cultural cachet of Costco’s. Today, the company sells more than 100 million hot dogs annually, which is more than every MLB stadium combined. And they continue to prove surprisingly adept at anything that could add even a single cent to the deal. When California enacted a soft drink tax that would have raised the consumer’s cost, Costco locations in the state switched the combo to include Diet Pepsi, as diet drinks are exempt from the law. The company's “effing hot dog” will continue to remain a steal for the foreseeable future.
Maybe even longer. In late 2022, CFO Richard Galanti was asked how much longer Costco could hold the hot dog line.
“Forever,” he said.
A version of this article was originally published in 2018; it has been updated for 2023.
This article was originally published on www.mentalfloss.com as The Enduring Enigma of Costco’s $1.50 Hot Dog and Soda Combo.