April 13, 2024

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Why did Costco's CEO threaten to “kill” an executive over the price of a hot dog?

Why did Costco's CEO threaten to “kill” an executive over the price of a hot dog?

Costco's signature $1.50 hot dog remains a popular staple for shoppers at any of the retailer's 602 warehouses across the country, but how has the supermarket kept the price of beef delicacies so cheap since its introduction in 1985?

The reason in the beginning was emotional.

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

After Brotman teamed up with Cinegal in 1983 to found Costco, the duo pledged to never raise the price of their hot dog and soda combo.

As costs rose due to inflation over the following decades, the financial website Motely Fool wrote in an article last year that Costco should charge at least $4.25 for a bundled meal.

But in a 2018 interview with Seattle-based 425 Business magazine, then-CEO Craig Jelinek recounted the famous response from Sinegal, who has since retired, when he was told the hot dog price was unsustainable.

With inflation, Costco should charge at least $4.25 for a bundled meal. Clayton Park/News Journal/USA Today Network

“I came to (Senegal) one time and said, ‘Jim, we can't sell this hot dog for fifty dollars. “We're losing our hind limbs,” Jelinek said. “If you raise lively sausages, I'll kill you,” he said. Find out.'”

Jelinek recounted how he solved the problem by building Costco's own hot dog manufacturing plant in Los Angeles, and then another in Chicago, to avoid using more expensive outside suppliers.

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

Jelinek was asked again whether the price of hot dogs would ever change in a July 2022 interview on CNBC's “Squak on the Street.”

“No,” Jelinek answered simply.

Other leaders at the warehouse giant issued similar answers about their intentions for the hot dog and soda group's prices during shareholder meetings.

In 2022, Costco's then-CFO, Richard Galanti, told investors that $1.50 was not in danger of disappearing anytime soon when asked about expected margin pressure due to the cheap cost, MarketWatch reported at the time.

“We really don't look at it that way,” Galanti said. “Some of the companies that do well with profit margin…those things help us be more aggressive in other areas, or, as I mentioned, keep the price of hot dogs and soda a little longer — forever.”

With Jelinek retiring last year and Galante stepping down last month, some wondered if the price of the combo meal was in jeopardy. But Costco shows no sign of violating its co-founder's pledge any time soon.

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