Death, Taxes, and Hotdogs

It’s been five hours since my last meal. My stomach grumbles as I pedal my rusty bike. I ascend the hill, pass the intersection, and enter the parking lot. My legs shake. I found it. I stare at the red and blue sign on the beige building. Costco Wholesale.

Photo by Eric Wang

Costco Wholesale sells around 4000 products, including food, furniture, and clothing (“Costco Wholesale,” n.d.).

I ask an employee for permission to enter the food court. Customers swarm the front counter. I stare at the sign above.

Photo by Eric Wang

Costco sells a hotdog with a 20-ounce fountain drink for $1.50 CAD.

Everyone has a different life story. I was born in 2001 and lived for twenty three years. Each year, I lose my friends, abandon my hopes, and lower my expectations. However, one thing remains constant throughout. The Costco hotdog price.

The Dollar

Costco Wholesale first opened in 1983 (“Costco Wholesale,” n.d.). According to the Bank of Canada’s Inflation Calculator, $1.50 CAD has the same value as $4.02 CAD in May 2024 (“Bank of Canada,” n.d.).

Photo by Eric Wang

For forty years, the 1984 Canadian dollar value appreciates and the Costco hotdog price remains.

The CEO Death Threat

Is Costco profiting as much per hotdog as it did in 1984? Why not raise the price? According to Irene Jiang of Business Insider, when Costco's current CEO, Craig Jelinek, once approached Sinegal, then the CEO, about raising the price of the hot dog, Sinegal told him, "If you raise the [price of the] effing hot dog, I will kill you. Figure it out" (Jiang, 2020). Aside from death threats between Costco CEO’s, how did Costco keep costs low for the all-beef, quarter pound, hotdog?

The Hotdog History

Best’s Kosher Sausage Company and Hebrew National first made Costco’s hotdogs (“Chicago Tribune,” 2021; Palan 2023). In 1993, the Sara Lee Corporation purchased Best’s Kosher Sausage Company (“Chicago Tribune,” 2021). In March 2009, Costco stopped selling kosher hotdogs. Costco introduced an in-house Kirkland brand hotdog and replaced Hebrew National as their hotdog supplier (“Costco Connection,” 2009). Through the Kirkland brand, Costco manufactures their hotdogs from the cows raised by the farmers, to the sausages shipped to warehouses, and every step in between. The micromanagement reduces the manufacturing cost. Did Costco successfully cut costs?

The Hotdog Combo Cost

Costco hides their margins on the hotdog combo. I will calculate the cost of each component and provide an upper bound for the following: The quarter pound all beef sausage, the hotdog bun, the 20-ounce Pepsi paper cup, and the drink inside the 20-ounce paper cup.

According to a 2022 post by Natalie from Costcuisine, a Costco food review blog, a fourteen pack of all beef Costco quarter pound hotdogs costs 15.99 CAD (“Costco,” n.d.; Natalie, 2022a). This means Costco prices each hotdog from the package at $1.15 CAD, rounded up to the nearest cent. In another 2022 post by Natalie from Costcuisine, the Dempsters Deluxe Classic Hot Dog Buns costs $4.89 CAD for 16 buns, which is about $0.31 CAD per bun, rounded up to the nearest cent (Natalie, 2022b). Note that the hotdog bun varies per location and Costco doesn’t disclose the exact bun on their hotdogs, so I chose a hotdog bun that resembled the one on the hotdog advertised.

In terms of the 20-ounce Pepsi paper cup, Inn supplies, a distributer of paper cups, sells one thousand 22-ounce double poly coated Pepsi paper cups for £65.00 EUR before tax (“Inn Supplies,” n.d.). Although these are not the same as the 20-ounce paper cups in the hotdog combo, a 22-ounce paper cup can hold 20 ounces of beverage. According to Google Finance (2024, June 13), £65.00 EUR is $96.70 CAD. This means a 20-ounce paper cup costs at most $0.10 CAD. Adding up the prices mentioned, the expected manufacturing cost of the Costco hotdog combo costs at $1.56 CAD. Since the upper bound is over $1.50, Costco could lose money on their hotdog sales. Costco sells 200 million hotdogs per year (Grow, 2024). If we assume Costco loses $0.06 CAD per hotdog, Costco loses at most 12 million CAD per year on hotdog sales.

My calculations are limited and ignore the labor costs of the Costco employees that assemble the hotdogs in the food court. My cost calculations for the quarter pound all beef hotdog and hotdog bun remain circular since I define their costs in terms of other items that Costco sells. This means that the calculations does not account for the margins on the other items that Costco sells. Furthermore, the Pepsi paper cups vary in price based on paper cup size, supplier, order size, and the shipping cost and the drink inside the paper cup varies since the customer has several choices. There might be countless other variables I missed.

Will the $1.50 combo cease to exist?

Costco could be selling their hotdogs at a loss. Should I worry about the $1.50 hotdog and soda combo disappearing from my life? In the 2019 fiscal year, Jelinek said in Costco's January shareholder meeting that he had no intention of raising the price of the hot dog. "We have no plans to take that hot dog above a buck fifty," he told shareholders. "End of story" (Jiang, 2020). I feel relieved. In the meantime, I savor my hotdog and soda and try not to think about why Costco would sell their combo at a loss. That is a problem for later me.

Photo by Eric Wang

I enjoy my temporary ignorant bliss.

References

22oz Pepsi Paper Cups. Inn Supplies. (n.d.). https://www.innsupplies.com/products/22oz-pepsi-paper-cups?variant=42390363111639

Costco Wholesale. (n.d.). About | Costco. https://www.costco.com/about.html

Allison, M. (2009, November 15). Complete Q&A with Costco founder, CEO Jim Sinegal. The Seattle Times. https://www.seattletimes.com/business/complete-qa-with-costco-founder-ceo-jim-sinegal/

Chicago Tribune. (2021, August 22). The end of a Chicago tradition. Chicago Tribune. https://www.chicagotribune.com/2009/01/23/the-end-of-a-chicago-tradition/

Costco Connection - March 2009 - hot dog chicago style. Costco Connection - March 2009. (2009, March). https://www.hotdogchicagostyle.com/uploads/cotsco200903us-4e732ced34-pp.pdf

Grow, R. (2024, January 19). The number of Hot Dogs Costco sold in 2023. Mashed. https://www.mashed.com/1497689/number-hot-dogs-costco-sold-2023/

Bank of Canada. (n.d.). Inflation calculator. Bank of Canada. https://www.bankofcanada.ca/rates/related/inflation-calculator/

Jiang, I. (2020, September 21). Costco’s founder once told the company’s current CEO, “if you raise the [price of the] effing hot dog, I will kill you.” Business Insider. https://www.businessinsider.com/costco-founder-warned-ceo-not-to-raise-hot-dog-price-2020-9

Kirkland Signature Beef Wieners, pack of 14 | costco. (n.d.). https://www.costcobusinesscentre.ca/kirkland-signature-beef-wieners,-pack-of-14.product.100282711.html

Natalie. (2022a, March 30). Costco Kirkland Signature Beef Wieners Review. Costcuisine. https://www.costcuisine.com/post/costco-kirkland-signature-all-beef-wieners-review

Natalie. (2022b, April 25). Costco Dempsters Deluxe Classic Hot Dog Bun Review. Costcuisine. https://www.costcuisine.com/post/costco-dempsters-deluxe-classic-hot-dog-bun-review

Palan, M. (2023, February 25). Everything you need to know about hebrew national hot dogs. The Daily Meal. https://www.thedailymeal.com/1210420/everything-you-need-to-know-about-hebrew-national-hot-dogs/