In 1984, warehouse club retail chain Costco Wholesale (COST 1.26%) introduced a combo meal to its food court that eventually grew into a national sensation. The company began offering an all-beef hot dog and drink combo for $1.50. Adjusted for inflation, the deal would be priced at about $4.50 today.
Forty years later, Costco still charges the same $1.50 for its hot dog combo today. According to CFO Richard Galanti, the company intends to keep this price “forever,” jokingly saying it out of fear of being struck by lightning otherwise.
On Tuesday, Feb. 6, Galanti announced that he would be stepping down from his CFO position at Costco in March. He’s been CFO since 1985, and he’s consequently responsible in large part for keeping the combo deal at $1.50 for all of these years.
Some Costco members now fear that the end is nigh for the famous food-court bargain.
A hot dog of a deal
Hot dogs are big business for Costco. The company sold almost 200 million hot dog combos in 2023 alone. Over the years, it’s done everything it can to reduce its costs rather than raise its prices. This includes changing from cans of soda to fountain drinks, and Costco even became vertically integrated by opening its own hot dog facility.
It may be tempting for Costco’s new CFO Gary Millerchip to raise prices for this famous hot dog meal. After all, even $0.50 of extra profit per combo would boost the company’s bottom line by $100 million. But I doubt he’ll do it.
Costco is in the business of profiting from its annual memberships, not its sales. Everything it does is aimed to please members and ensure they renew their memberships year after year. Raising the prices of its hot dogs would be a surefire way to lose members, which is why I believe Millerchip will look for ways to keep the price at $1.50.
Of course, Millerchip has yet to comment on this publicly. But I expect it will be the first question he’s asked by analysts when Costco reports financial results in March.
Jon Quast has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Costco Wholesale. The Motley Fool has a disclosure policy.
