The Truth Behind Costco's Battle With Starbucks
Costco's operating logic demands that its prices stay as low as they can, lest another Costco wannabe comes in to usurp them. While this makes for happy customers, this set up led to a testy phone call between Howard Schultz, the CEO and founder of Starbucks, and Jim Sinegal, the CEO and co-founder of Costco.
Typically, the relationship between the two was good. In 2013, Schultz admitted in a Q&A on which QSR reported that he considered the Costco co-founder as one of his leadership mentors. Still, as The New York Times regaled in a profile piece on Sinegal's attitude towards Costco's philosophy, Starbucks once refused to lower their coffee bean prices, causing Senegal to threaten Schultz with Costco's cessation of stocking their products unless prices were cut.
Tim Rose, Costco's senior vice president for food merchandising, recalled Schultz asking, "Who do you think you are? The price police?" Sinegal said he was (via The New York Times), and Schultz eventually accepted Sinegal's demand for a price cut.
Costco's prices are precious to its CEO
That phone conversation, as the article makes evident, was between friends. Sinegal can be very clear and very direct with others, as in the infamous remark he made about the Costco hot dog and soda combo.
In 2018, Mental Floss ran a story that opened with W. Craig Jelinek, president of Costco, informing Jim Sinegal that due to the amount they were losing on producing the hot dogs, they would have to raise the price of the hot dog and soda package from $1.50. Sinegal's response was, "If you raise [the price of] the effing hot dog, I will kill you. Figure it out."
The price was so important that in 2013, they replaced Coca-Cola with Pepsi for their product, according to Business Insider. While Costco denied this had anything to do with a 2009 in which Costco retaliated to Coca-Cola's refusal to reduce prices by halting sales of all Coke products, it shows that the dispute between Costco and Starbucks was not personal. It was simply Costco being Costco.