You Won’t Believe How Much Revenue Costco’s Hot Dog and Soda Combo Brings In

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If you’re a long-time Costco member, you may have noticed that the price of many of the store’s items has gone up in recent years. We can thank inflation for that.

Although Costco has tried to keep its prices at a reasonable level to offer great value for members, the company isn’t immune to rising costs. So to some degree, it’s had no choice but to raise prices.

But there’s one deal you’ll find at Costco that’s price hasn’t gone up in decades — the famous food court hot dog and soda combo. Since 1985, Costco has been offering up a giant hot dog with all of the fixings you can pile on plus a large soda for the almost unbelievably low price of $1.50.

For context, based on inflation, that combo should cost more like $4.50 at present. But Costco has intentionally maintained that super-low price for one big reason.

It’s all about customer loyalty

There’s a reason Costco has kept the price of its hot dog and soda combo intact for roughly 40 years. The company is willing to forgo profits and even lose some money selling the combo at that price to offer great value to customers and retain memberships.

Last year, Costco sold more than 130 million hot dog and soda combos, totaling about $195 million of revenue for the company. But all told, it didn’t profit from those combos.

That’s okay, though. See, the reason Costco is able to take a loss on its hot dog and soda combo, and the reason the chain is able to offer such competitive prices in general, is that it generates a ton of revenue from membership fees.

During its last fiscal quarter, Costco reported membership fee income of $1.11 billion, up $84 million or 8.2% year over year. Given that, losing some money on hot dogs isn’t such a big deal.

Should you join Costco?

A basic Costco membership costs $60 a year, while an Executive membership costs $120. With the Executive membership, you get 2% cash back on your Costco purchases.

One thing it’s important to realize is that the amount of money you spend on a membership might pale in comparison with the savings you’re able to reap in the course of a year by purchasing groceries and other household essentials at Costco.

In fact, let’s assume you start off with a basic membership that costs you $5 a month (you pay annually, but $60 divided by 12 is $5 on a monthly basis). You might save yourself $5 on a single purchase at Costco compared to the cost of buying it at a regular grocery store.

Say your family eats pancakes often and enjoys them with maple syrup. A 33.8-ounce jar of maple syrup at Costco costs $14.99 based on the online price, and in-store prices are generally cheaper. The same quantity of syrup at a regular supermarket might cost you more like $27. So here, you’re saving $12, or the equivalent of over two months of your membership fee, by purchasing just maple syrup at Costco.

Now, multiply that savings by the many items you might buy in bulk. The number could be huge.

And that’s the value of joining Costco. You shell out some money for a membership, but Costco will most likely make it up to you in the form of freeing up more money to put in your investment or savings account. So it pays to consider joining if you’ve been on the fence. At the very least, you know you can snag an ultra-cheap lunch in the course of doing your shopping.

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We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers. The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.Maurie Backman 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.

You Won’t Believe How Much Revenue Costco’s Hot Dog and Soda Combo Brings In was originally published by The Motley Fool

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