The untold truth of Costco

You may know Costco as a convenient place to shop: the retailer offers discounted prices on bulk items, which is a huge plus for many customers across the United States. But did you know that Costco is also ranked as one of the best large companies in the U.S. to work for? Did you realize that Costco has some of the highest minimum wage rates in the country? Maybe not! 

Behind all of that success is a carefully planned business model that has an emphasis on keeping both employees and customers happy. In fact, the retailer is known for doing everything they can possibly do to keep prices as low as they can — they know that their success lies in the satisfaction of the people who frequent the stores. There's a lot more to uncover about Costco, and all of the facts are pretty interesting, from where the company began to how it's grown into what it is today. Take a look at the untold truth of this favorite warehouse retailer. 

It is one of America's largest pizza chains

Costco is known for many things: amazingly discounted prices, delicious free samples, and, surprisingly enough, their food court options. It's hard to say which menu item is more popular, the hot dogs or the pizza, but pizza is a serious contender. In fact, the company sells so much of it that they are considered to be one of the most popular pizza chains in America… which is confusing, considering you'd never call Costco a pizza chain! But in 2015, Business Insider reported that the retailer was the 14th largest pizza chain in the country. 

There are a few reasons why they sell so much pizza, and it doesn't only have to do with the taste — although it is pretty darn tasty. According to Business Insider, much of the success comes from the very low price point, which is only about $1.99 for a massive slice of pizza. There's also the accessibility: Costco sells pizza by the slice or by the pie, while many chains only sell full pies. 

They constantly move items around the store on purpose

If you shop at Costco fairly often, you've probably noticed that some items seem to float around the store — one time, you find toilet paper in aisle three, the next time, it's in aisle nine. In case you were wondering, yes, that happens all the time. It's actually a business strategy, and a successful one at that. Costco warehouse designer Stan Laegreid wrote in Fast Company that Costco goes through a "constant, storewide rotation of target staples" which they refer to as "triggers." The idea? The customer has to search for these staples since they don't know where they are, and they're exposed to lots of other items along the way. As Laegreid noted, it has helped make Costco one of the largest retailers in the country.

So how can you shop efficiently? As Laegreid pointed out, most "luxe" items (like TVs and computers) will be in the front, fresh food is towards the back, and the "outside of the track" has practical staples, like toilet paper. 

This treasure hunt is also the reason you won't see signs indicating what's in each aisle — if they tell you, you won't have a reason to take a look. 

Costco is one of the biggest wine retailers in the U.S.

Wine might not be the first thing you think you need to grab when you run to Costco, but maybe it should be. According to Market Watch, Costco did $1.69 billion worth of wine sales in 2015. They spoke to Costco's assistant general merchandise manager, Annette Alvarez-Peters, who said that "wine comprises nearly 50 percent" of their total alcohol sales. Alvarez-Peters also said that their wine sales are "outpacing the industry" and that they are "ranked at the top for wine sales."

One of the reasons for this is probably the prices. The Daily Meal has reported that Costco wine is usually about 10 to 20 percent less than wine at other wine stores, and sometimes even less than that. It's hard to beat wine that is that cheap! On top of that, the wine doesn't taste inexpensive — they have some great values that taste great too. On top of that, you don't have to be a member to buy alcohol at some Costco locations — so anyone can enjoy the low prices of a bottle of wine, which opens them up to more sales and customers. 

Costco's top-selling product is kind of random

Costco sells so many different popular items: there are some of your favorite snacks, really great desserts that are made in the bakery, the famous rotisserie chickens, clothing, accessories, tech items, and of course, the hot dogs they also sell in bulk. It's interesting to think about what might be the top-selling item at Costco, but the answer to that is actually completely unexpected.

According to a 2012 report from CNBC, Costco's number one selling item is toilet paper. Yes, toilet paper! Apparently, they sell more than one billion rolls every year, which comes out to more than $400 million worth of toilet paper each year. The rates are something that can be attributed to both the high quality and the low price. When you think about it, it does make sense: everyone needs toilet paper, everyone has to purchase it regularly, and it's best purchased in bulk, at a great price point. 

CNBC also says that technicians intensely test out the toilet paper for whiteness and the right measurements to make sure it's exactly right for customers. That's the kind of care you want to go into your toilet paper!

They will probably never change the price of their hot dogs

By now, you've probably figured out that one of the secrets to Costco's success is their low prices. That goes for the food court items too, especially when it comes to the infamous hot dogs. The retailer charges only $1.50 for a hot dog and soda combo, which has been the price for more than three decades. CNN reported that in 2017, they sold 135 million hot dog combos, which is proof that the price is a huge draw. 

And that will likely never change. In an interview with the Seattle Times, Costco co-founder Jim Sinegal said that you won't see an increase in the price while he's alive. He explained that they've managed to keep the price down by changing the brand to Kirkland Signature, which is their in-house brand. He added, "It's the same quality hot dog, all beef, the best ingredients that you can imagine. I know it sounds crazy making a big deal about a hot dog, but we spend a lot of time on it." In the end, he knows that to change the price would be a huge deal, saying, "We're known for that hot dog. That's something you don't mess with." 

There are a few things you can do at Costco even if you don't have a membership card

Costco runs on a subscription business model, meaning that customers have to pay an annual membership fee in order to get a membership card so that they can enjoy shopping there. But for those who don't want to pay for the deals, don't worry: there are actually some things you can do at Costco even if you don't have a card. According to Cooking Light, you can go to the food court, shop for alcohol in certain states, go to the pharmacy for medication (also depending on your location), and get health services like the flu shot.

And if you just want to shop like a normal person, you can even do that without a card. Cooking Light writer Zee Krstic wrote about discovering Costco Cash, which allows you to do exactly that. Costco Cash is basically like a Costco gift card: you can get a current member to purchase Costco Cash, give it to you, and then go shopping, even if you don't have a membership card. You can't reload the Costco Cash — only someone who is a member can do that — but if you have a friend who's willing to help you out, you're golden! 

They're trying to make the food court healthier

The two staples of Costco's food court have always been pizza and hot dogs. While certainly delicious, one wouldn't exactly call these healthy. It seems like the retailer is trying to change that up a bit, though, by offering more healthy options at their food courts (while keeping the pizza and hot dogs, of course). In late 2018, chief executive Craig Jelinek told the Seattle Times that they were beginning to add on to the menu, with items such as açai fruit bowls, organic burgers, and a plant-based protein salad, which is called the "Al Pastor Salad." And the prices are in line with the rest of their items — the açai fruit bowl is only $5, which is a steal compared to the price of those in many other places (they can sometimes go for more $10 or more). 

It's also worth noting that both the salad and the smoothie bowl are vegetarian. According to Cooking Light, the açai bowl is vegan, while AOL says the Al Pastor Salad is made of plant-based protein (soy), romaine lettuce, black beans, and banh mi vegetables. It's definitely a good way to appeal to more people. 

There's a strategy behind their free samples

One of the best things about shopping at Costco is getting access to all of those little irresistible free samples. They're often placed around the store (especially in the back by the fresh food), and they're great to snack on while walking around shopping. There's also a strategy behind those samples: they make customers happy, and they result in sales. Giovanni DeMeo, a representative of the product-demonstration company Interactions, which handles Costco's samples, told The Atlantic, "When we compare it to other in-store mediums … in-store product demonstration has the highest [sales] lift." 

DeMeo also pointed out that samples make customers more loyal to stores and brands over long periods of time. Figures in The Atlantic show that beer samples from Interaction at unnamed national retailers boosted sales by 71 percent, while samples of frozen pizza boosted sales by a whopping 600 percent. 

There's also an element of psychology behind the whole situation. Dan Ariely, a behavioral economist at Duke University, explained to The Atlantic, "Reciprocity is a very, very strong instinct. If somebody does something for you, you really feel a rather surprisingly strong obligation to do something back for them." In other words, when customers get samples, they want to give back to Costco by spending money. 

They're going to great lengths for those rotisserie chickens

Another food that sells exceptionally well at Costco is their rotisserie chickens. In late 2018, NPR reported that Costco's chickens were so in-demand that the retailer had decided to build a farm-to-table production system so they can always be sure they have enough rotisserie chickens. NPR said the operation was under construction in the city of Fremont, Nebraska. 

The plant is going to process more than two million chickens per week when it's all finished. Jessica Kolterman, a spokeswoman for Lincoln Premium Poultry (the company Costco started to build and manage the farm project), told NPR, "All of our barns in Nebraska and Iowa collectively will supply about 40 percent of Costco's needs. That will roughly cover the western half of the United States, Alaska and Hawaii."

According to Business Insider, the farm will also allow the retailer to continue selling the rotisserie chickens at $4.99. In fact, the Seattle Times once reported that Richard Galanti, Costco's chief financial officer, once said "We were willing to eat, if you will, $30 to $40 million a year in gross margin by keeping it at $4.99. That's what we do for a living." By keeping the prices painfully low on select items, like rotisserie chickens, they lure customers in to spend more on higher-priced items. 

Their Kirkland Signature brand is one of the biggest brands out there

According to Fast Company, Kirkland Signature, which is Costco's private label, is one of the most successful brands in the industry. CNN reported that, in 2018, Kirkland Signature brought in almost $40 billion, which was an 11 percent increase from the previous year, saying, "That's more than JCPenney and Macy's combined. Kirkland's sales also beat out Campbell Soup, Kellogg, and Hershey put together." 

One of the reasons for this is that Kirkland sells for at least 20 percent cheaper than national brands found in the store. Not only does this keep Kirkland price points low, but it also ensures that those brands won't increase their prices, as they want to compete with Kirkland. 

The company is also totally aware of how important Kirkland is, although they couldn't have predicted how big it is now. Costco Chief Financial Officer Richard Galanti told CNN, "I don't think at the beginning of this process in the early 1990s we thought nearly a third of our business would be under this brand." 

Costco is considered one of the best places to work

Costco is a wonderful place for customers, but it's just as good for employees. The retailer is consistently named one of the best companies to work for in the United States. Forbes reported that in 2017, Costco was named America's Best Large Employer, winning out over Walmart and Google. And USA Today reported that in 2018, Costco was named one of the best large companies to work for according to Comparably. Jason Nazar, CEO and Co-founder of Comparably, explained, "When you look at Costco, they overwhelm employees with benefits and employees feel like they're part of a family." 

The retailer is also known for giving employees terrific benefits. A 2018 Indeed report looked at 18 million employer reviews, and found out that employees at Costco were happier with their wages and benefits than those at any other company, beating out places like Apple and Starbucks. Costco pays a living wage, and gives benefits such as health care, dental care, vision plans, 401K programs, life insurance, and more.

They made it from nothing to $1 billion in three years

Costco's first location opened in 1976 under the name Price Club. It originally only served small businesses before turning into Costco and taking on non-business members as well. They opened their first warehouse location in 1983, and according to the website, "became the first company ever to grow from zero to $3 billion in sales in less than six years." In an interview with CNN, Jim Sinegal and Jeffrey Brotman, two executives of the company, talked about Costco's quick success. Sinegal stated that they "hit the $1 billion mark in our third year of operation." He added that the first year wasn't overwhelming: in the first few weeks, sales were growing at a weekly rate of 25 percent. But by 10 weeks, they had hit $1.4 million in weekly sales. 

Costco attributes this to their "simple" operating philosophy: "Keep costs down and pass the savings on to our members. Our large membership base and tremendous buying power, combined with our never-ending quest for efficiency, result in the best possible prices for our members." The hot dog combo certainly helps, too! 

Some things remain the same as in that first location

Costco got its start in Seattle, Washington — the first warehouse location there was opened in 1983. Sinegal spoke to The Motley Fool about the beginning of the store, saying that when they began in downtown Seattle, they were using a building "that was 100,000 square feet." He described it, saying, "It was a pretty simple facility. We didn't have many of the enhancements that we've added to the business since then." He also added that it was basically like a warehouse, and that since then they've added on fresh food, a pharmacy, gasoline, and the food court, among other departments. 

One thing that hasn't changed: the retailer doesn't have a P.R. department and they don't spend money on advertising. Instead, they rely on the satisfaction of customers and employees to get the word out. In an interview, Sinegal told ABC one of the of the many benefits of treating employees right, saying, "Imagine that you have 120,000 loyal ambassadors out there who are constantly saying good things about Costco. It has to be a significant advantage for you." 

They are one of the companies with the highest minimum wage

One way Costco keeps employees happy is by paying them well. In the spring of 2018, Market Watch reported that Costco announced that they would raise minimum wage and boost pay for their U.S. staff, increasing hourly wages by $1 to $14 or $14.50 an hour. Some other hourly employees would receive raises between 25 cents and 50 cents. Fox Business says that, at $14 an hour, Costco pays some of the highest wages among United States retailers. Amazon is ahead at $15 an hour. 

According to Real Money, a recent 14-A filing from Costco explained, "The company seeks to develop long-term relationships with employees. Those working in the Company's membership warehouses receive pay and benefits more generous than their counterparts at competitors. This long-term investment in its workforce has benefited the Company with greater loyalty, and the Company consequently benefits through what it believes to be the lowest employee turnover rates and the lowest shrink rate in the industry."