Costco's famous hot dog soda combo will stay priced at $1.50 'forever'

Costco's $1.50 hot dog and soda combo has famously been considered a terrific buy by shoppers ever since it first debuted at that price in 1985. Subsequently, amid the crunch of inflation, people have also been worried that the company might raise the price of this iconic combo. Fortunately, Costco CFO Richard Galanti put these concerns to rest during a presentation on fourth-quarter financial results last week when he committed to holding the hot-dog-and-soda combo price constant. During the call, he was reportedly asked whether the retailer would look at increasing the price of its all-beef frank as it looks to offset the margin squeeze in other areas.

"We really don't look at it that way," Galanti said, reports MarketWatch. "I think the thing I mentioned earlier about there [being] some businesses that are doing well with margin, like [the] gas business, [in] a smaller way — in the travel business, 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. But at the end of the day, no, I don’t think we necessarily look to find places where we can harvest margin."

The price of its famous hot dog combo has been a point of contention among Costco executives in the past. If the price were adjusted to address inflation, customers would be looking at a price of $4.11 by now. CEO Craig Jelinek famously broached the idea of hiking the price to co-founder Jim Sinegal after noticing how much the retailer was losing on the special. However, Sinegal quickly shut the proposal down by threatening to kill Jelinek if he ever raised the price of the combo. "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.,'" Jelinek said in an interview with 425 Business in 2018. "And he said, 'If you raise the effing hot dog, I will kill you. Figure it out.' That's all I really needed."

"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," he added.

"We have never been a company that puts the shareholders on top. You have a responsibility to a shareholder—you do—but if you take the shareholder first, you are going to be in it for the short term. We had a difficult time (with Wall Street) with the wages that we paid (and) our refund policy, but we've gotten past that because have been able to grow the business," Jelinek explained. "Everything that we do at Costco is not to figure out how much we can make; it's (about) how little we can make and still pay our bills because we want to sell more. We want to continue to lower the price and sell more units. It gets us more gross margin dollars to pay the bills."