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Business

Why Costco’s CEO threatened to ‘kill’ an exec over the price of hot dogs

By
Stephen Sorace, Fox Business
Published Feb. 25, 2024, 3:17 p.m. ET

Costco’s signature $1.50 hot dogs remain an ever-popular staple for shoppers at any of the retailer’s 602 warehouses nationwide, but exactly how has the big-box store kept the price of the all-beef cuisine so cheap since its introduction in 1985?

The reason, at first, was sentimental.

Costco’s late chairman Jeffrey Brotman, who co-founded the warehouse empire with its since-retired CEO Jim Sinegal, told the now-defunct King County Journal newspaper in Bellevue, Washington, in the early 2000s that his first business venture was operating a hot dog cart at the Seattle Center with his brother in the late 1970s, the Daytona Beach News-Journal reported.

After Brotman teamed up with Sinegal in 1983 to form Costco, the pair pledged never to raise the price of the hot dog and soda combo.

With inflation pushing costs higher over the ensuing decades, the financial Motely Fool wrote in an article published last year that Costco should be charging at least $4.25 for the combo meal.

But in a 2018 interview with Seattle-based publication 425 Business, then-CEO Craig Jelinek recounted the famous response from Sinegal, who had since retired, to being told that the hot dog price wasn’t sustainable.

This is a close-up of the quarter-pound all-beef hot dog and 20-ounce soft drink combo at the new Costco at One Daytona purchased on the morning of the Daytona Beach store's opening day, Thursday, Feb. 22, 2024. The price for the combo was $1.50, unchanged from when the retail giant began offering it in 1985.
With inflation, Costco should be charging at least $4.25 for the combo meal. Clayton Park/News-Journal / USA TODAY NETWORK

“I came to (Sinegal) once and I said, ‘Jim, we can’t sell this hot dog for a buck fifty. We are losing our rear ends,'” Jelinek said. “And he said, ‘If you raise the effing hot dog, I will kill you. Figure it out.'”

Jelinek recounted how he solved the issue by building Costco its own hot dog manufacturing plant in Los Angeles, and later another plant in Chicago, to avoid using more expensive third-party suppliers.

With the plants up-and-running, Jelinek told the outlet that the hallmark item was making “enough money to get a fair return.”

Jelinek was questioned again whether the hot dog price tag would ever change in a July 2022 interview on CNBC’s “Squak on the Street.”

Jelinek simply replied, “No.”

Other leaders at the warehouse giant have issued similar answers about their intentions with the hot dog and soda combo prices during shareholder meetings.

In 2022, Costco’s then-CFO Richard Galanti told investors that the $1.50 price was not in danger of disappearing any time soon when asked about the believed margin squeeze over the cheap cost, MarketWatch reported at the time.

“We really don’t look at it that way,” Galanti said. “Some businesses that are doing well with margin … those things help us be more aggressive in other areas, or, as you mentioned, hold the price on the hot dog and the soda a little longer — forever.”

With Jelinek retiring last year and Galanti stepping down last month, some have wondered whether the price of the combo meal was in jeopardy. But Costco has shown no sign of breaking its co-founder’s pledge any time soon.

Last month, an Ohio resident went viral after eating nothing but the $1.50 hot dog and soda combo from Costco for an entire week. He explained to Fox Business that the rising costs of food in the past few years pushed him to undertake the challenge, spending a total of about $45 on the meals.