The reason behind Costco's $1.50 hot dog becoming a prominent symbol in retail

In the world of retail, some things remain constant, and for Costco Wholesale, one such constant is the $1.50 hot dog. Introduced in 1984, shortly after the company's founding, this affordable treat has become a defining feature of the Costco shopping experience.

Despite competition, Costco has consistently maintained the price, with current CEO Ron Vachris and long-time CFO Richard Galanti publicly declaring their commitment to the iconic offering. Even Costco's former CEO, Craig Jelinek, famously stated that if the price were to be raised, he would face the wrath of co-founder Jim Sinegal, who said, "If you raise the effing hot dog, I will kill you. Figure it out."

Sam's Club, a rival retailer, is attempting to compete with Costco's offering by providing a similar hot dog and soda combo priced at $1.38. However, Costco's combo serves a quarter-pound all-beef hot dog with a fountain drink, much like its competitor. The difference lies in the soda size, with Sam's Club featuring a larger size.

Interestingly, Costco transitioned its fountain soda supply from PepsiCo to Coca-Cola in the summer of 2023, while Sam's Club continues to offer PepsiCo products at its food court. Costco's decision to manufacture its own Kirkland-branded hot dogs also contributes to maintaining the low price.

Costco's commitment to the $1.50 hot dog extends beyond the price tag. The company has even gone as far as opening facilities in California and Illinois to reduce supply chain costs and preserve the low price. This dedication has not gone unnoticed, with Shopper AI brand strategist Alon Barak highlighting that Costco loses close to $300M annually on the hot dog deal but wins in membership renewals, loyalty, and brand equity.

Despite the financial losses, some analysts advise investors not to just look at Costco's P/E ratio and miss the overall story. A separate report suggests that Costco's stock surge masks a price tag that might be too high to ignore. However, others argue that Costco is not considered cheap but also not overstretched.

In July, short bets on most consumer staple stocks, including Costco, rose, indicating a potential concern among investors. Yet, the $1.50 hot dog remains a significant driver of store traffic and membership loyalty, ensuring Costco's commitment to this long-standing tradition.

As Costco Wholesale celebrates over four decades of offering the $1.50 hot dog, it's clear that this affordable treat is more than just a meal—it's a symbol of Costco's commitment to affordability and the shopping experience it offers its customers.