The Real Reason Costco's Hot Dog Meal Is So Cheap
There is no more universally-beloved food item than the humble hot dog. The thought of this simple sausage might invoke sentimental memories of family barbecues, warm summer nights celebrating the Fourth of July, or even going out to a carnival or baseball game. Oh, and of course, the Costco food court. Everyone loves hot dogs — perhaps that's why there's a whole month dedicated to this humble tube steak.
Another thing that everyone loves is a good deal, and that just so happens to be where Costco excels. Perhaps that's why the beloved hot dog combo meal is such a talking point. For over 30 years, Costco has been selling its infamous hot dog combo — a quarter-pound, all-beef frank and 20 ounce Pepsi with unlimited refills — for the stupidly good price of $1.50. Keep in mind that this unbelievable price point was set in the mid '80s, Costco's early, formative years. If it were to have increased with inflation, which according to Business Insider is currently at its highest since 1990, the combo meal would be just under four dollars (via USInflationCalculator).
So how come Costco hasn't changed this price of this delectable dog n' pop meal? After all, they're not making any money on it — in fact, they're not remotely close to cutting even on it (via Bloomberg). The answers might surprise you.
Costco has eliminated the hot dog middle man
As part of a food service trial experience back in 1984, Hebrew National (Costco's hot dog vendor at the time) provided the company with a cart to station outside the warehouse to see if it attracted any hungry passersby (via Reader's Digest).
Things seemed to be going well until 2009, when Costco and Hebrew National split ways. While consumers were undoubtedly confused and a bit frustrated at this seemingly sudden occurrence, the reasoning behind the switch had actually been a few years in the making. Since the mid '80s, Costco had been using two different kosher hot dog suppliers, and in 2007, the kosher meat industry was showing a very steady decline in the availability of its supplies. This decline would undoubtedly spur an increase in the price of meat and prompted Costco to look into creating a Kirkland Signature version of the beloved frank. Call it divine timing, because in 2008, one of its dog vendors quit the kosher meat business and the other shut down altogether. Luckily, the Kirkland Signature dog had been perfected, and in 2009, Costco launched its 100% all-beef franks at its national food courts, as well as for purchase in-store.
Costco launched its own Kirkland Signature hot dog
Creating a hot dog for Costco's own brand was a major contributing factor in keeping prices down. It eliminated all the costs associated with having a middleman, as well as having complete control over every aspect of the product. But in order to keep up with the demand for the delicious dogs, Costco had to figure out how to continue selling them for the low, low price of $1.50. That's why, in 2009, Costco opened up a factory in Tracy, California (just outside of Los Angeles) to accommodate the increase in hot dog consumption (via TheBlueBook). Having a bright and spiffy new factory helped limit production costs, which ultimately meant that Costco could continue selling its infamous combo meal for the same low price.
When the demand for Kirkland Signature hot dogs increased even more, the company opened up yet another factory in Chicago (via MentalFloss). Eat This, Not That reported that in 2021, Costco was selling over 150 million combo meals annually. Not counting the seven holidays the U.S. locations observe, that comes out to around 419,000 a day. So remember, if there's any doubt about Americans' hot dog infatuation, this should crush that belief.
It's an incentive for shopping there
Shopping in general is exhausting. Vestibular.org notes that the bright lights can trigger headaches, while crowds can instigate anxiety (via Mayo Clinic), and customers leaving their carts in the middle of the aisle while they go try samples can make you want to scream. Shopping can be overwhelming and leave you cranky, tired, and incredibly hangry. Costco has an added annoyance: Square footage. It's a lot of space to cover. According to Investopedia, the average Costco warehouse is around 146,000 square feet, so you're undoubtedly going to work up an appetite.
That's why it's great to know that you can satisfy your hanger demons after you're finished shopping, or even fuel up before you start counting your steps. For only a buck and a half, you're getting 552 calories — that's just a naked hot dog and bun, no toppings — of protein and carbs to fuel you as you cruise on autopilot through the winding aisles (via MyFitnessPal). It's also a great way to tide fussy children over until your shopping excursion is finished, because let's face it — kids get antsy. An instant, inexpensive, filling meal is the least Costco can offer when you take into consideration the cost of a yearly membership — $60 dollars for the Gold Star and $120 for the Executive membership (via Kiplinger).
It's good advertising
Costco shines amongst competitors when it comes to one thing: Advertising. Why? Because other than sending out mailers to current members, they spend zero on advertising to the public at large (via Investopedia). According to Statista, big box companies like Walmart (who dropped $3.2 billion dollars on advertising in 2021), or Target (spent $1.5 billion dollars in 2020) rely on different forms of advertising — print, direct mail, television and radio, and digital media to name a few — to reach target consumers (via Indeed).
Costco's customers almost act as human billboards. After all, you don't normally see people walking around eating behemoth hot dogs every day. And when you do, it's (more often than not) from the Costco food court (no hard feelings, Wienerschnitzel). In an interview by Seattle Times, Costco co-founder Jim Sinegal says that it's one of the main things Costco is known for. "We have people who have parties at our hot dog stands. Guys in Florida get together and have T-shirts that have the Costco hot dog on them. We have people who after their wedding party came over and got a hot dog at one of our warehouses. We're known for that hot dog. That's something you don't mess with."
Remember that hot dogs are commonly associated with happy memories. If you get a combo meal just before leaving the store, that positive experience imprints a feel-good moment in your noggin that will keep you coming back for more (via PopSugar).
It's cheap to produce
Hot dogs, in general, are a pretty inexpensive food item to produce. The Houston Chronicle writes that a vendor's costs average around $0.45 to $0.80 for the hot dog, bun, and condiments (depending on their meat quality and provider).
But that's just for hot dogs. The combo drink also includes a 20-ounce Pepsi. Up until 2013, Costco locations offered Coke brand drinks as the sole option at its food courts. Ultimately, failed pricing negotiations meant that Coke was bumped out, and Pepsi became the new thirst-quenching alternative (via Business Insider).
Take into consideration the 150 million hot dog combos that Costco sells annually — after doing the math, that equates to about 226.5 million hot diggity dollars. Still, even though these combo meals cost a trivial amount to produce, that doesn't mean Costco is raking in the dough. Despite the increase in consumption, the company is still cutting a loss (via Bloomberg).
It builds customer loyalty
Costco is loyal to its customers, there's no question about that. They also take pride in providing the little things that bring people joy, like scoring a tantalizingly good deal on bacon, eggs, coffee, rotisserie chicken, or, you know, a mortgage (via Delish). It's not just the prices that build loyalty, it's the little giveaways that people normally take for granted.
Little snacks, and especially affordable food court items, actually give customers a reason to visit (and come back). "People look at that hot dog and say, a buck fifty, this is unbelievable. It's the same thing you'd spend $7 or $8 at the ballpark for and not get the same quality dog. It's one of the things that we're known for," explains Costco co-founder Jim Sinegal to Seattle Times.
People love feeling like they're getting special treatment, and that's why you don't just get a simple Kirkland Signature hot dog at a premium price. You get a quarter-pound, 100% all-beef Kirkland Signature hot dog and a 20-ounce soda. Costco knows that the hot dog deal brings its customers joy — and garners the company more membership renewals. "When you get customers who are that delighted with something, it's worth your time and energy to make it work," Sinegal says. No matter what, the hot dog combo is something Costco customers relish. In other words, Costco really cuts the mustard.
It's the founder's way or the highway
It's obviously apparent that if there's one thing Costco is loyal to, it's the customers. If you need further proof, 425 Business reported that co-founder Jim Sinegal was more than adamant about keeping the combo meal priced at $1.50. In fact, his response to an inquiry about raising the price was downright terrifying. Even raising it $0.25 (from $1.50 to $1.75) was out of the question, according to Costco CEO Craig Jelinek (via Seattle Times).
You see, Sinegal takes both the hot dog and customer service just as seriously as Costco members take shopping for a good deal. If you mess with the mighty Costco hot dog, you mess with his loyal fan base. So when Jelinek came to him and said that they were losing too much money by keeping the combo at the $1.50 price, Sinegal is quoted saying, "If you raise the effing hot dog, I will kill you. Figure it out" (per 425 Business). That's some fearsome dedication, and it seems like the Costco crew figured out the pricing debacle. Ultimately, passion trumps procedure, and Eat This reports that the hot dog combo meal will continue to live on at the same price point it's always been: $1.50.