
The Enduring Enigma of Costco's $1.50 Hot Dog and Soda Combo - coloneltcb
http://mentalfloss.com/article/547020/costco-150-hot-dog-soda-combo-enigma
======
fencepost
While the article starts with a "we're losing money on these" anecdote, the
article does _not_ say that they're losing money in terms of selling the combo
below cost. They are selling it for less than the market will bear, but that
also applies to the rotisserie chickens ($5/3lb vs grocery stores at 2lb).

If it makes you feel better, think of the lost $0.50-$2 as being silently
charged to their marketing budget behind the scenes with the money never
actually flowing through Costco.

Edit: if you look into the economics of rotisserie chickens, I believe you'll
find that Costco is actually making a nice profit on them despite the relative
low cost vs competitors.

~~~
achille
> but that also applies to the rotisserie chickens ($5/3lb vs grocery stores
> at 2lb).

It's a common myth that rotisserie chickens are cheaper than frozen. If you do
the math you'll find that rotisserie chickens are slightly more expensive.

See:
[https://www.ams.usda.gov/mnreports/pywretailchicken.pdf](https://www.ams.usda.gov/mnreports/pywretailchicken.pdf)

> Rotisserie, Under 2lb, Norwest cost is $5.73/lb on average

~~~
Avshalom
I think they meant that costco sells a 3lb rotisserie at 5 dollars while most
stores sell a 2lb at $5. Which mean Costco's Rotisserie is 50% or 67%
(depending which way you want to calculate it) cheaper.

------
dragonwriter
> When California recently enacted a soft drink tax that would have raised the
> consumer's cost, Costco locations in the state switched the combo to include
> Diet Pepsi.

The link supporting this claim refers to changes in San Francisco and Seattle
locations as a result of city ordinances, not a statewide change in
California.

~~~
maerF0x0
Why dont they just remove the sugar from the syrup and offer packets or liquid
syrup in containers like at coffee shops?

~~~
matthewmcg
With dry table sugar, at least, it would be a lot of work. A large Coke from
McDonald's has about 70 grams of sugar* and a typical sugar packet contains
2.8 grams. You'd need to stir in _twenty five_ packets to get to the standard
recipe level of sweetness.

*Equivalent amount of table sugar (sucrose)--the syrup may use high fructose corn syrup instead.

Edit: on further reflection, we should do this. It's a much more vivid
illustration of how much sugar we consume through soda than an abstract
calorie number.

~~~
maerF0x0
Also packets can be made larger.

------
tomlor
One of my gripes about this price point is that they downgraded the buns they
use with their hot dogs a few years ago. They used to be these tasty,
substantial picnic rolls, but now they're bland and bready. I'd happily pay a
few cents more to get the better buns.

The real kicker is that if you look at the photo of the hotdogs in their food
courts (in SoCal, at least), the photos are of the old, picnic style buns and
NOT what they are serving today - a bait-and-switch (bake-and-switch?) if you
ask me...

~~~
flyGuyOnTheSly
The buns are declining in quality... you have to ask for the free toppings now
(like onions and sourkraut which were always kept in the condiments counter
until a year or two ago). They are now kept in carefully measured tiny plastic
containers completely void from view. And the quality of the "meat" inside has
dropped off a cliff in recent years.

I don't enjoy them at all anymore, where as I used to go into Costco sometimes
just to get their hotdogs.

It's not the same $1.50 hotdog when they change literally everything about it.

~~~
Waterluvian
Wasn't there some thing about people making massive plates of "kimchi" with
those free condiments?

~~~
nasredin
The kids here use the same cup for soda refills for years or until it
disintigrates, or the faded colors or outdated color scheme gives the little
punks away.

~~~
flyGuyOnTheSly
Little punks? Stealing soda? They could do worse...

------
grendelt
"Enigma"

It's called a loss leader.

~~~
dsr_
Well, if they were actually losing money on it, it would be a loss leader.

But since the actual cost of the dog, bun, cup, soda, paper plate, napkins,
condiments, labor and depreciation comes in under $1.50, it's not a loss. It's
just money left on the table.

Except -- it probably isn't. Costco isn't really a restaurant, it's a store
which carries a limited number of high-value items packaged in bulk. The hot
dogs (and the other low-priced food up front) are a form of complementary
good, which more than pays for itself by enticing people to come in on their
lunch breaks and shop for fifteen to thirty more minutes than they would if
they had to stop for fast food somewhere else. And it keeps kids quiet when
the parents want to spend more time there.

Department stores have repeatedly rediscovered the utility of having a decent
food option available on-premises - Neiman Marcus, Macy's, Ikea.

~~~
dreae
It's absolutely a text book loss leader. A loss leader doesn't need to be sold
below cost, only below its minimum profit margin.

Leaving money on the table is effectively losing money.

~~~
mmt
I think you've said two different things here.

> A loss leader doesn't need to be sold below cost, only below its minimum
> profit margin.

I think that's an important point, in that you're saying that it's incorrect
to consider only the cost of ingredients, rather than the entire cost of
delivery (including cooking, labor, etc.).

On the other hand, as the parent pointed out, they're not a restaurant, so
their "minimum profit margin" _for this particular activity_ is zero.

As such, they can afford to do it, at whatever volume, indefinitely.

> Leaving money on the table is effectively losing money.

This is the different thing, since it has to do with what the market will bear
and not with what it costs them.

The distinction is important because a business can, by this definition,
"effectively lose money" while still making a profit. That's good enough for
some people.

~~~
dsr_
It's not "effectively" losing money. It's losing imaginary money.

If you want to see an actual loss leader, go to a grocery story in mid-
November. They'll sell you a frozen turkey for (depending on competition) 20
to 50 cents a pound. Wholesale cost will be 80 cents to $1.20 a pound. They
take an actual loss on the turkey in order to get you in the store where you
will buy three times your usual weekly grocery budget in special holiday foods
-- all of which are marked up more than they will be right after Thanksgiving.

If selling at less than the market is willing to pay but more than what covers
your total costs is a "loss leader", then every sale to attract customers is a
"loss leader" and the term has no useful meaning.

~~~
mmt
> It's not "effectively" losing money. It's losing imaginary money.

Well, to be fair, the money is real (or at least potentially real). It's the
loss that's imaginary.

> then every sale to attract customers is a "loss leader" and the term has no
> useful meaning.

Agreed. We already have the word "sale" (or "discount" or "promotion") without
using the inaccurate word "loss".

------
HenryBemis
So (I assume) this is where IKEA got the idea from, with their $1.5 hotdog in
the exit of every store.

Someone even made a comparison! [1]

[1]: [https://dailyhive.com/vancouver/review-it-costco-hot-dog-
vs-...](https://dailyhive.com/vancouver/review-it-costco-hot-dog-vs-ikea-hot-
dog/)

~~~
hotdog97
So I just had to Google this.

According to [https://newsroom.inter.ikea.com/news/ikea-develops-a-
veggie-...](https://newsroom.inter.ikea.com/news/ikea-develops-a-veggie-hot-
dog-for-the-ikea-bistro/s/fa6dd766-e889-4439-970c-897d554e1d89)

"The hot dog at IKEA has a long history: In 1981, and true to his vision for
IKEA to be affordable for the many, Ingvar Kamprad set the price of the IKEA
hot dog at 5 Swedish Krona – which was half price compared to competitors in
Sweden at that that time. It was the beginning of the success story of the
IKEA hot dog that today is served at IKEA all over the world."

So, Ikea Sweden introduced a hot dog priced at 5 SEK in 1981. (The USD was
super cheap at that time; my best guess is that this corresponded to like
$0.90.)

According to Costco themselves, their hot dog enterprise started in 1984:

[http://www.costcoconnection.com/connection/200903/?u1=texter...](http://www.costcoconnection.com/connection/200903/?u1=texterity&pg=25#pg25)

Myself: I don't think IKEA in Sweden were even on the radar for these Costco
people in San Diego in 1984. I don't think they "copied" this concept.

But it's safe to say that IKEA did not got this idea from Costco.

Interestingly, the price for a hot dog at IKEA in Sweden is still 5 SEK, 37
years later.

------
megaman22
Cumberland Farms doesn't cost much different. Hotdogs are about the cheapest
possible meat, and fountain soda costs nothing, effectively.

My dark secret is that I absolutely love gas station hot dogs. Especially at
old country stores that have a steamer loaded with red hotdogs on one side and
the buns on the other.

------
pooya13
It's also interesting how they design the warehouses to place the unnecessary
items in the front (where you are excited to shop) and the essentials at the
back (where you might be more hesitant to pick up anything). They also
sometimes reduce prices on memorable items to induce the sense of
affordability for the whole store.

------
jbigelow76
"Enduring Enigma" seems like a grandiose way to describe a loss-leader
marketing gimmick, good for Costco for suckering bored writers though.

------
znpy
TL;DR: It's a sales driver.

------
fpgaminer
Technical Aside: Just by scrolling through the article mentalfloss.com flooded
my history, making it impossible to use the back button. "Neat"

~~~
reaperducer
It also disables reader mode in Safari.

------
kodablah
> When California recently enacted a soft drink tax that would have raised the
> consumer's cost, Costco locations in the state switched the combo to include
> Diet Pepsi.

What are they going to switch to when the state enacts a hot dog tax? Or a fat
tax? Or a preservative tax? Or a disposable cup tax?

~~~
bvc35
While we're at it, let's add a sugar tax, high-fructose corn syrup tax, fried
food tax, GMO-food tax, extra car taxes,poor-taste book tax, and a bad-movie-
tax. Hopefully this will force people to do what I damn-well know they should
be doing, and make them run their lives better than they could themselves.

------
biastoact
It is not unlike Prime Video and Prime Music (among others). When you run a
membership program you create offers that increase the perceived value of the
membership and engagement with your ecosystem. Similar is Costco gas, people
wouldn’t drive out of their way for the discount if they didn’t already pay
the membership. And while you are there you might as well pick up four times
the bread you need, more milk than you consume in a week, a new camera (that
was probably cheaper online), and a hot dog on your way out. Getting the value
out of that $100 membership leads people to consume far more than they
normally would.

~~~
gowld
Your examples don't makes sense, as bread and milk (which Costco sells as
multi-packs) keep fine in storage. Buying perishables and junk food would be a
better example.

Costco electronics prices are competitive and have the best return policy and
practice in the industry.

~~~
jeremyt
In what world does milk "keep fine in storage"?

~~~
ouid
The modern world. Milk no longer goes bad quickly.

~~~
reaperducer
I guess it depends on the definition of "quickly" and also where you live.

In some cities I've lived, the expiration date of milk was often two or three
weeks out. In other cities, it was 10 days maximum.

I think it's because dairies (and cows) are not equally plentiful in every
part of the country.

One thing I have noticed is that in the places where regular milk expires in
10 days, the organic milk (which one family member drinks) doesn't expire for
a month or more.

~~~
Avshalom
Sell by dates are basically a fiction.
[https://www.fsis.usda.gov/wps/portal/fsis/topics/food-
safety...](https://www.fsis.usda.gov/wps/portal/fsis/topics/food-safety-
education/get-answers/food-safety-fact-sheets/food-labeling/food-product-
dating/food-product-
dating/!ut/p/a1/jVFhT8IwEP014wvZemNIhslilkUDKENClLEvpmPt1qRbZ9uh89dbRD5oQOmlyd3ru9x7V5SiBKU13rECayZqzPd1OnqBJYzccQSzxdi9g2n8vFzcRxH4qytD2PxBiL0L-8-cEP7rn10wYCDn0bxAaYN1abOaCpQURNu4Vm9EKpRQIXJbYUp0Z1O81bYqCdHHB44zwlldfJeNFHlrOLlZ0TlwjdKfssA1MY291XAyiz1YDH8TTuztQDi_GOO84CL7-qRNWGeebyxKQokk0mmlgUutG3VtgQWtyrEiWG5LZ586hdhZcABuWk39wHJvB5ZRYq7Xw5QyzrAmAVVM9V5bIrtAEc77Wdc3FklvK6qKaec9gGPaBXBKRymURsmJ8aipnpKPh3AC7LFa-
yr8BPx8HRI!/#3)

only limitation is: infant formula and false advertising (defined in
[https://www.law.cornell.edu/cfr/text/9/317.8](https://www.law.cornell.edu/cfr/text/9/317.8)
)

