Costco Spends $275 Million to Keep Their Rotisserie Chicken at $5
In this day and age, companies who seem like they really care about their customers are few and far between. Costco — with its fair pay and benefits, low prices, and giant plush teddy bears — really seems to be one of the good ones, and a new, very expensive move to keep down the price of one of their food staples just adds to the list of why we love the wholesale chain.
Costco’s $275 Million Commitment to Keep $5 Rotisserie Chickens
For the past year, Costco has been building a $275 million poultry-processing center in Fremont, Nebraska, that will house their entire rotisserie chicken operations. Opening in September 2019, the 414-acre property plans to employ 800 people and process about 100 million chickens a year. The main reason behind Costco’s new facility? To pass on the savings to their customers, vowing never to raise the price of their chickens again.
Since 2009, Costco has kept its rotisserie chicken under $5. That’s a dollar less than most other stores, which is why of the 600 million rotisserie chickens sold in 2017, Costco sold 79 million of them. The problem, however, is historically they lose profit that way. A lot of profit.
“When others were raising their chicken prices from $4.99 to $5.99, we were willing to eat, if you will, $30 to $40 million a year in gross margin by keeping it at $4.99,” said Costco’s chief financial officer, Richard Galanti, in a 2015 call, according to the Seattle Times. Of the 2009 decision to keep the price down, David Fuller, Costco’s assistant vice president of publishing, said in 2009 edition of Costco Connection, “Holding a price that steady for that long sends a clear message about what is possible when you decide to operate your business model on a ‘cost-plus’ basis instead of a ‘what the market will bear’ basis.”
The new factory will help the company avoid losing profits on rotisserie chicken, since in-house production avoids costly markups. This isn’t the first time they’ve used this strategy, either: Since 1985, they’ve kept their $1.50 hot dog and soda special by building their own hot dog facility in Tracy, California.
So, Why Is Costco Doing This?
If you’re wondering why a company would go to such lengths to keep prices down so low, their aim is not completely altruistic.
Although I’m sure some college student somewhere has eaten a whole rotisserie chicken by itself, most people who buy them tend to buy sides to go with it, which, if you notice the next time you’re in Costco, are conveniently placed right near the rotisserie display. If your store is the place where everyone gets their chicken, it stands to reason that it’s the place where they get everything else for dinner that night too.
Whatever the reason, Costco proves that the store/customer relationship can sometimes be mutually beneficial. Fuller also said in that same issue of Costco Connection that “a business can operate on a fair markup and still pay all of its bills,” and our wallets can totally agree with that.