Why Costco’s hot dog is still $1.50 when everything has gotten so expensive

By Nathaniel Meyersohn | CNN

New York  — Inflation has touched nearly everything these last few years — even Trader Joe’s 19-cent bananas. But Costco is holding the line on its hot dog-soda combo price.

Costco’s hot dog deal, sold at its food courts, is still priced at $1.50 — exactly what it cost in 1985, before the Great Recession, the housing crisis, the pandemic and the latest bout of decades-high inflation.

Since the pandemic started, prices for consumers have gone up 20% overall, according to the Bureau of Labor Statistics. In many key areas, like housing and groceries, prices have increased even more.

If Costco’s hot dog deal kept pace with inflation, it would be three times as expensive today — nearly $4.50. But Costco’s $1.50 combo is a strategic decision, known as a loss-leader: The company is willing to lose money selling the hot dogs at that price — inflation be darned — so long as it helps Costco draw in and retain customers.

“It’s branding,” said Scott Mushkin, a retail analyst at R5 Capital. The $1.50 deal helps create customer loyalty, he said. “It reminds customers of who Costco is.”

Costco loses money selling more than 100 million hot dogs every year, but the company offsets these losses by raising prices on other goods it sells. Costco has increased prices of pizzas and other items at its food courts.

But Costco has a unique business model that allows it to keep prices low: It makes almost all of its money on memberships, selling items on its warehouse floor very nearly at cost – and sometimes less.

Costco’s longtime finance chief Richard Galanti, who retired this month, said in a recent interview that the $1.50 price was “probably safe for a while.”

Falling inflation vs. falling prices