Recently, the US membership-based chain store Costco tightened its membership qualification checks, prohibiting non-members from dining at the outdoor food court. However, on Thursday (May 30), the newly appointed Chief Financial Officer of Costco announced some good news – the popular $1.50 hot dog combo will remain unchanged. Costco also revealed that they are currently not prepared to raise membership fees.
Costco’s food court is famous for selling $1.99 pizza slices and $1.50 hot dog combos, which have always been loved by both members and non-members. In addition, the last time the company raised prices was in 2017. Analysts point out that based on the usual five to six-year price increase interval, a price increase should have been implemented long ago.
On Thursday afternoon, Gary Millerchip, the new Chief Financial Officer and Executive Vice President of Costco, shared this candid information with investors and analysts during his first earnings conference call.
“To clarify some recent media speculation, I also want to confirm that the $1.50 hot dog price is safe,” Millerchip said shortly after welcoming participants to the company’s third quarter earnings conference call.
The price of Costco’s hot dog and soda combo has remained at $1.50 since its introduction in the mid-1980s. While former CFO Richard Galanti had previously stated that the $1.50 price would “forever” remain unchanged, earlier this year he hinted that prices may only be safe for a period of time after he leaves.
The hot dog combo not only includes a 1/4 pound all-beef hot dog but also a soda priced at $0.69. In total, Costco’s hot dog combo costs $0.81, a price that fast-food chains nationwide have long abandoned.
With inflation expected to drive costs higher over the next few decades, financial media Motley Fool wrote in an article last year that Costco should charge at least $4.25 for the hot dog combo.
In an article by Mental Floss magazine in 2018, Costco co-founder Jim Sinegal was quoted as saying to CEO Craig Jelinek, “If you raise the price, I will kill you. Think it over.”
Sinegal went on to say that, by the way, if you raised it to $1.75, that might not be a big deal, people would still buy it. But if when you think of Costco, you think of a $1.50 hot dog (and soda), that’s a mindset.
Galanti had also previously mentioned in earnings conference calls that revenue from other segments of Costco’s business helps offset the costs of the food court. If this holds true, the $1.50 hot dog price may continue to be in place in the foreseeable future as indicated in the latest earnings report, showing Costco’s sales growing by 9.1% compared to the third quarter of 2023.
Costco released its financial data after the US stock market closed on May 30 for the third quarter of the 2024 fiscal year (ending May 12, 2024), with revenue up 9.1% to $58.52 billion, surpassing Wall Street analysts’ expectations of $58.02 billion, including net sales of $57.39 billion and membership fee revenue of $1.12 billion.
“We’ve seen victories in several different categories,” said Costco CEO Ron Vachris on Thursday.
Currently, Costco has nearly 134 million cardholders, showing a growth of 7.4% compared to last year, with an overall membership renewal rate of 90.5%, and a renewal rate of 93.0% in its largest markets, the US and Canada.
Regarding whether membership fees will increase, Millerchip told investors on Thursday, “I will really reassess some of the comments shared by Richard (Galanti) before.” Galanti had stated last year that Costco’s membership fee increase “will happen at some point.”
“The business performance we see has not changed our view on this,” Millerchip said.
“This is still a question of when to increase fees, rather than if we increase fees. But we are still evaluating these considerations to determine the best timing,” he added.
Currently, the membership fees for Costco’s competitors, BJ’s Wholesale and Sam’s Club, are $55 and $50 respectively.
Vachris stated on Thursday that the increased membership fees will be passed back to members in the form of lower prices and explained the reasons behind the company’s eventual decision to take this step.
“One of the key ways we use this money is to allow us to distance ourselves from our competitors, bring greater value to our members, and improve our overall operations,” Vachris added.