2023-09-08 00:46:22
Last year, a simple ‘tweet’ caused Costco shares to lose 10% of their value in one day. The message announced the company’s decision to succumb to the effects of inflation and raise, for the first time in 37 years, the price of its hot dogs. They would cost 2.5 dollars compared to the 1.50 at which it stood (and remained) since its launch in 1985. It was a hoax, but it highlighted the value that such a simple product literally and metaphorically has in the framework of of the second largest supermarket chain in the world (only behind Walmart).
When Costco founders Jim Sinegal and Jeff Brotman decided to offer hot dogs to their customers, the chain had been in business for two years. Its business model, based on the belief that the wholesale sales system could be adapted to the final consumer and that the latter would be willing to pay a fee and buy extra large formats such as family packs if this guaranteed low prices and a wide Variety of products. Thus, as a shopping club, the firm began to expand while increasing its catalog. In fact, he ended up consolidating into Kirkland Signature the unmanageable number of own brands he had created for each product category.
In 1985, Sinegal had the idea of offering food inside the establishments to attract a larger audience. The star of that initial menu would be something as simple and typically American as the hot dog made with 100% kosher beef (allowed for Jews), accompanied by a soft drink for 1.5 dollars (1.4 euros). Despite not yet weighing today’s 113 grams (a quarter of a pound), the idea quickly became a success that came to be worth more than the cost of the product itself.
That is to say, the benefits it brings are not economic, despite the fact that, according to the firm itself, it sells more than 100 million puppies each year. What Costco achieves by keeping the price at 1.5 dollars, instead of the almost five that it would cost if we simply updated the CPI, is gaining the trust of a clientele that feels that without leaving the restaurant area they already believe that they It is worth paying your membership fee.
To adjust margins and not go into losses, Costo opted to cut some of its suppliers and build its own manufacturing plants, first one in Los Angeles and then another in Chicago. There is no denying that Costco’s strategy is a success. It has almost 120 million subscribers around the world.
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