Costco’s Secret Weapon: $1.50 Hot Dog And Soda

The Lempert Report
June 20, 2018

Business Insider decided to learn a bit more about Costco and hot dogs and spoke with 36 Costco employees.

Costco sells 100 million hot dogs a year and the price hasn’t changed since 1985. But the hot dog itself has. In many locations, in fact about half of them for many years it was a Hebrew National hot dog that was sold. That changed a few years ago as the cost of the hot dog increased, but Costco didn’t want to change their $1.50 combo price to shoppers.

The Costco food court that fans know and love can trace its lineage back to 1984, when the then-eight-year-old chain decided to stick a "single hot dog cart in front of a San Diego warehouse," according to David Wight's article in the 2009 edition of the company magazine Costco Connection. Employee Jay de Geus was tasked with hawking the Hebrew National hot dogs. 

From there, Costco launched Café 150 — named for the fact most of its menu items cost $1.50. In 1993, Costco merged with Price Club and inherited the chain's pizza kitchen, too. 

An anonymous Costco employee told Pop Sugar that Costco charges $1.50 for a hot dog and soda "just so your last experience before leaving is one of a pleasant cashier treating you well and giving you a good deal." 

On Quora, a former competitive buyer at Costco wrote that the food courts are actually "the main contributor to the dividends its shareholders get."

"Do not think for one minute that Costco does not make a huge margin on food court products," user Lenin Lobaton wrote. "That is where the profit of Costco comes from. In short, the food court is a gold mine for Costco." 

Other Costco employees say the hot dog deal is bait to draw in hungry shoppers.

"We do not make money off of our food," food court employee Josh Smith wrote on Quora. "The $1.50 hot dog deal is called a 'loss leader,' which means that it is used to draw in buyers for other higher-priced items like the chicken bake, brisket sandwich, and our new item, chili." 

In the 2009 edition of Costco Connection, assistant vice president of publishing David Fuller wrote that "holding a price that steady for that long sends a clear message about what is possible when you decide to operate your business model on a 'cost plus' basis, instead of a 'what the market will bear' basis."