How Costco keeps $1.50 hot dog-and-soda combo despite inflation

Longtime Costco CEO Craig Jelinek recently revealed how the big-box retailer has managed to maintain its $1.50 price point for a hot dog-and-soda combo despite an inflation surge over the last year.

Jelinek, the top boss at Costco since 2012, said in-house production of hot dogs has helped the company keep costs lower. Costco has sold hot dogs at its stores since the 1980s – with the original hot dog cart evolving into a full-fledged food court.

“We kind of evolved and came up with the food court, but we kept the $1.50 hot dog,” Jelinek told Yahoo Finance in a Dec. 5 interview published last Friday. “To keep it $1.50, we actually produce our own hot dogs.”

“Do we make a lot of margin off of it? No,” Jelinek admitted. “But we make it ourselves.”

Costco’s hot dog deal grew so popular that the company opened its own hot dog factory in Tracy, Calif., in 2011. The factory produces regular-sized hot dogs that are sold in packs at its stores, as well as a larger hot dog sold at its food courts.

Aside from the plant in Tracy, Costco also makes hot dogs at a meat factory in Illinois. The two facilities make about 300 million hot dogs each year, Costco CFO Richard Galanti told the Wall Street Journal in July.

Jelinek reiterated that Costco has no plans to raise the price of its famed combo.

“We are very happy with our $1.50 hot dog and we have no plans to change it,” he said.

Food prices continued to hammer American shoppers in November, even as overall inflation cooled. The price of groceries rose 12% last month, according to the latest Consumer Price Index.

The cost of hot dogs spiked 13.4% in November compared to the same month one year earlier.

Costco executives have been adamant for months that the hot dog-and-soda combo won’t see any price hikes in the days ahead.

When asked about a potential increase during an earnings call in September, Galanti joked, “lightning just struck me.” He added that higher-margin parts of Costco’s business, such as gas and travel sales, helped to offset the hit taken from the hot dog deal.

“Those things help us be more aggressive in other areas, or as you mentioned, hold the price on the hot dog and the soda a little longer – forever,” Galanti said.

In 2018, Jelinek shared an anecdote regarding the time that he approached Costco co-founder Jim Sinegal about a potential price hike for the company’s hot dogs.

“I said, ‘Jim, we can’t sell this hot dog for a buck fifty,’” Jelinek said. “‘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.”