Costco co-founder and former CEO Jim Sinegal is serious about hot dogs. That's why he once reportedly told the new CEO and president, W. Craig Jelinek, "If you raise [the price of] the effing hot dog, I will kill you," according to a 2018 interview with 425 Business.
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 35 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. That's worth more than keeping up with inflation.
This, it seems, is indeed the lesson that Jelinek took from Sinegal threat:
I came to (Jim Sinegal) once and I said, 'Jim, we can't sell this hot dog for a buck fifty. We are losing our rear ends.' And he said, 'If you raise the effing hot dog, I will kill you. Figure it out.' That's all I really needed. By the way, if you raised (the price) to $1.75, it would not be that big of a deal. People would still buy (it). But it's the mindset that when you think of Costco, you think of the $1.50 hot dog (and soda).
What we figured out we could do is build our own hot dog-manufacturing plant (in Los Angeles) and make our own Kirkland Signature hot dogs. Now we are doing so much hot dog business that we've opened up another plant in Chicago.
By having the discipline to say, 'You are not going to be able to raise your price. You have to figure it out,' we took it over and started manufacturing our hot dogs. We keep it at $1.50 and make enough money to get a fair return.
Who knew that such a weird threat could lead to a truly inspirational lesson on hot dog economics?
Costco CEO Craig Jelinek on Shareholders, Costco.com, and Hot Dogs [Todd Matthews / 425 Business]
The Enduring Enigma of Costco's $1.50 Hot Dog and Soda Combo [Jake Rossen / Mental Floss]
Image: Public Domain via NeedPix