The Costco warehouse club has been hesitant to pass on price increases to customers, but two popular menu items in its food court now cost more.
Costco (COST) – Get Costco Wholesale Corporation Report exists to serve its members.
The warehouse club essentially makes a deal with the people who pay $60 a year for Gold Star membership or $120 a year for Executive membership: In exchange for those fees, the retailer offers goods at very low prices.
That bargain is something the chain has taken very seriously, even as supply-chain issues and inflation have pushed its costs higher.
Senior Vice President Bob Nelson, who filled in for vacationing Chief Financial Officer Richard Galanti on the third-quarter-earnings call, commented on the chain’s value proposition.
“I think we always want to be the best value in the marketplace,” he said. “And to the extent that we continue to show that, I think it’s easier for us to pass on higher pricing or higher freight costs or raw material costs, assuming that we show that value in the marketplace. And that’s what it’s all about really. And I think we feel good about it.”
Essentially, Nelson said that some prices would go up but that the warehouse club would look to move in line with its major competitors.
“I mean our most recent shops, against who we watch most closely, have not changed. And we’re every bit as competitive as we’ve been, notwithstanding the fact we have taken some prices up in certain areas, in food, in sundries, and in fresh foods,” he added.
Costco ha been rigids, however, on some of its best-known pricing for two customer favorites: its $4.99 rotisserie chicken and $1.50 hot-dog-and-soda deal in its food court.
Patrick T. FALLON / AFP) (Photo by PATRICK T. FALLON/AFP via Getty Images
Costco Raises Two Key Food-Court Prices
The warehouse club has been fiercely protective of the rotisserie chicken and hot-dog deals, and Nelson addressed one of those during the call.
“Finally, I want to address some incorrect information floating around on social media and a few other media outlets, claiming that we have increased the price of our $1.50 hotdog-and-soda combinations sold in our food courts,” he said.
“Let me just say the price, when we introduced the hot-dog-soda combo in the mid-’80s, was $1.50. The price today is $1.50, and we have no plans to increase the price at this time.”
But while that deal remains in place (even as it almost certainly is a money loser), Costco has raised the price of two items in its food court.
“The warehouse retailer increased the price of their chicken bake by 33%, increasing the price from $2.99 to $3.99,” Boston’s WCVB reported. “The price for a refillable 20-ounce cup of soda also increased, from $.59 to $.69, photos from warehouses posted to social media showed.”
These changes may seem small, but again, Costco has been very protective of the perceived value it offers through the food court, and the chain does not make changes like this easily.
Are More Costco Price Increases Coming?
Nelson did make clear that Costco has seen higher prices and bigger expenses and that some of that will be passed on to members.
“We believe our solid sales increases and relatively consistent margins show that we have continued to strike the right balance in passing on higher costs,” he said.
The executive gave a more specific example later in the call.
“I think just recently, it may have been after the end of the quarter, reluctantly we took up the price of our muffins and our croissants, I think, $1, as the price of a lot of those raw materials have continued to escalate to two times and three times and four times what they were last year,” he said.
Nelson also made clear that the warehouse club has considered raising its membership fees — and will eventually do so — but that change is not imminent.
“Historically, we’ve raised fees every five to six years, with the last three increases coming, on average, at about the five-and-a-half-year time frame and our last increase coming in June of 2017. As we approach this five-and-a-half-year mark, there will be more discussions with Craig, Ron, and the executive team,” he said.
That’s a “not if, when” kind of answer but it also shows the company understands that a big increase during a period of economic uncertainty for the country might not be a great look.
