How does Costco keep the price of its hot dogs so cheap?

DAYTONA BEACH − When the new Costco at One Daytona opened for business Thursday morning, most customers immediately began shopping. Daytona Beach residents Jeremy Bowersox and Teri Deardorff made a beeline instead for the store's food court.

Their first purchase? Costco's famous $1.50 quarter-pound all-beef hot dog and 20-ounce soda combo along with a $1.99 slice of pizza.

"Cheapest breakfast in town," said Deardorff as she and Bowersox sat down to eat.

How much should the combo meal really cost?

The Issaquah, Washington-based membership warehouse club chain has kept the price of its hot dog and soft drink combo the same since the food court menu item was introduced in 1985.

The investor website Motley Fool last year published an article stating that Costco should be charging at least $4.25 for the combo meal when factoring in inflation.

"The reason it doesn't is that Costco has effectively pledged to keep that $1.50 price point in place forever, or for as long as it's sustainable," the article stated.

Why are they refusing to raise the price?

In an interview in the early 2000s with the old King County Journal newspaper in Bellevue, Washington, Costco's co-founders, the late chairman Jeffrey Brotman and the since-retired CEO Jim Sinegal stated their intentions to never raise the price of the hot dog/soft drink combo.

The reason? The menu item had a personal sentimental meaning for Brotman.

His first entrepreneurial venture was a hot dog cart at the Seattle Center that he and his brother Michel briefly operated in the late 1970s. The name of their business was "Man Bites Dog."

Brotman finally found success when he teamed up with Sinegal to found Costco Wholesale Corp. in 1983.

Today, Costco is the world's third-largest retailer, behind only Walmart and Amazon based on 2022 revenues, according to the National Retail Federation.

Sinegal retired in 2011. Brotman died in 2017.

Hot dog has become a 'hallmark' offering

Costco's current CEO Craig Jelinek in a 2018 interview with a publication called 425 Business explained why he remained committed to keeping the price of the hot dog/soft drink combo unchanged: "I came to (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.'"

Given that directive from his predecessor, Jelinek came up with a different solution by building Costco's own hot dog manufacturing plant (in Los Angeles) as opposed to using an outside supplier. "Now we are doing so much hot dog business that we've opened up another plant in Chicago," he said. The combo item now generates "enough money to get a fair return."

Richard Galanti, Costco's chief financial officer, during a presentation to stock analysts of the chain's fiscal fourth quarter 2022 earnings, said the company has no intentions of ever raising the price of its hot dog/soda combo.

MarketWatch in a story published last year noted that the hot dog/soda combo has "taken on a life of its own" as a tradition for many Costco members when they shop at the chain's stores.

That was definitely the case for Deardorff and Bowersox on Thursday at the new Daytona Beach Costco.

Said Bowersox: "We really wanted to come this morning to get the iconic hot dog combo first thing on opening day."

This article originally appeared on The Daytona Beach News-Journal: How does Costco keep the price of its hot dogs so cheap?