The Enduring Enigma of Costco's $1.50 Hot Dog and Soda Combo | Hacker News Reader

The Enduring Enigma of Costco's $1.50 Hot Dog and Soda Combo

mentalfloss.com

90 pointscoloneltcb129 comments

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.

> 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

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

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.

Yeah but it's a cooked, ready to serve chicken. If you had to prepare it at home that's several hours of your time, energy for your oven, etc. and oven baked will not get the same result as rotisserie.

Yeah... the leading quote screamed “loss leader” at me, and the whole article that ensues tries to dispel that notion; in my mind it fails, because I’m left with the feeling that they’re doing their best to minimize the loss they make on unit economics but still provide a subsidy from their overall operations.

They actually sell the same hot dogs that they use in the food court back in the refrigerated area (or something very similar) but I'm not at a Costco and can't check the pricing. I doubt they're making much of a profit on the dog-and-a-drink combo, but I'm pretty sure they're not subsidizing it at least in terms of ingredients. I'd be surprised if cost of ingredients for it was more than $1-1.10 - $0.50-0.60 for the dog, $0.20 for the bun, $0.05-0.10 for condiments, $0.30-0.35 for the soft drink, bearing in mind that they're not paying the retail prices for those items.

I seriously doubt that their cost of soda runs even $0.30. A 5 gallon bag of Coke syrup (in relatively small quantities) runs $75 and makes 30 gallons or ~500 small cups of soda. At another 10c, the ice and an expensive cup might cost as much as the soda itself, but $0.20 total is probably high for Costco.

https://www.quora.com/Are-the-drinks-and-beverages-normally-...

i am going to assume that the hot dog combo is the same as Sams club's $1.50 combo. (I don't have a costco near me at all. I live in Walmart country)

Sams runs a 32oz drink with theirs. You could claim that it is only a 16oz with the ice but on the other hand you have free refills so I think 32oz is a fair average between ice and refills.

At that point it is 120 drinks per 5 gallons of syrup. Using your figure of $75 that leaves each drink costing $0.62 plus the cup. (Ice is negligible in cost.)

Non branded cups are $0.075 ea. I doubt branding adds much cost at scale.

Hot dogs are $96 for 120 (40 lb case) That comes out to be $0.80 per.

As for buns it looks like ~$0.15 per bun.

So add up soda + cup + hot dog + bun and you get $1.64 per meal. I left out lids, straws and napkins but those are small amounts.

Costco's dog is "1/4+ lb" so I'd figure 4 oz for convenience. I suspect their cost is $2/lb or less or $0.50-0.60/dog.

Costco drinks are a 20 oz cup, and they sell them for $0.59. They use non branded /Pepsi branded cups.

I'll update with their retail price for the dogs in bulk if I go over this evening for a chicken. Are you using retail /small scale wholesale pricing for your calculations?

To be honest, it sounds like the labor cost of moving these ingredients around and cooking/serving the meals is something to be considered here as well. The average employee, when factoring in wages, training, compliance and benefits, probably costs the company nearly 20 an hour. An in person transaction, from swiping the card to cooking and serving the food, probably is nearly $1 per dog.

Using Sam's prices. They have cheaper hot dogs but Nathan's is what they actually advertise as being in the concession.

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...

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.

That's local to your area. We still have the hand crank onions and ketchup/mustard/brown mustard/relish dispensers, and the dogs have been the same in my region for at least the last six years.

And where do you hail from, good sir?!

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

Perhaps, I have no idea, I certainly wasn't!

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.

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

> 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.

How is that possible, for Costco or for any restaurant that has a self-serve soda fountain?

In those cities, Costco only offers diet drinks. They removed the sugary drinks from the fountain.

Aha. The article links to paywall-dodging cache link for a news item with more detail.

https://www.bizjournals.com/seattle/news/2018/05/03/costco-r...

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

Because they'll just chase you around with laws regardless. That attempt to avoid the law through cleverness would generate news and sensationalism. That would spur a government response, because if there's anything politicians hate, it's attempts to circumvent their power. You're better off working within the system and trying to negotiate them down or into a different regulatory framework, than waving a flag at the bulls.

The sugar is part of the recipe that people associate with the brand. It's why Coca-Cola works so closely with McDonalds to get everything right with their dispensing machines.

Those new self-service auto-mixing machines for a long list of Coca-Cola products were designed by Dean Kamen.

They could, and then a mandatory charge for sugar packets (like there is for grocery bags) would be legislated.

But if the objective is to reduce sugar consumption shouldn't there be a sugar packet tax now, as part of the soda tax?

Butt for butt my local Starbucks isn't any different than BK, MD, etc.

> But if the objective is to reduce sugar consumption shouldn't there be a sugar packet tax now, as part of the soda tax?

I think the objective of soda taxes is to reduce childhood habituation to sugar, which is why they focus on a product heavily marketed to children.

> Butt for butt my local Starbucks isn't any different than BK, MD, etc.

Most of the sugar moving through Starbucks probably isn't sugar packets, anyway.

I drink my coffee black so I'm not sure. But annecdotally, there are plenty at Starbucks who could probably let us know how sugar fulfillment works there.

Yet the higher and higher cost of healthcare is a mystery?

This is actually a follow up to the next paragraph in that it doesn't address your specific point but it's also sort of more important: "poor people" go to BK and MD, and we can't be having with the idea that poor people are equally rational but existing in a world of different circumstances/choices. Nope, they need to be told whats best for them. On the left we tax junk food, on the right they demand SNAP/TANF/WIC only cover a very specific subset of food.

None of the soda taxes are particularly well thought out BUT Starbucks does not offer a 64oz anything unlike 7-11, so it's less obvious.

The problem with the tax is that it's a short term symptom-centric "solution" - bandaid on a fleah wound - but it doesn't actually address the root diseases. Unfortunately, the Nanny State is more popular at the voting booth.

Eventually, we'll run out of band aids. Then what?

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.

Also packets can be made larger.

Because then people would see how much sugar they're actually consuming and question whether to drink it at all.

I think people would actually increase their consumption if they felt like they could control the sugar. In my cynicism I think it would actually increase total sugar consumption (who's going to keep track of how many packets they're having) , Only putting in 1/2 the normal sugar rounds down to 0 in the mind and means "I put less in, therefore I can have 4 cokes a day) ....

"Enigma"

It's called a loss leader.

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.

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.

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.

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.

> 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".

> 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.

This is a loss leader. That's the entire concept.

Taking your loss in the opportunity cost is still a loss.

The article doesn't seem to suggest they're losing money.

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-...

So I just had to Google this.

According to https://newsroom.inter.ikea.com/news/ikea-develops-a-veggie-...

"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...

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.

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.

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

TL;DR: It's a sales driver.

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

It also disables reader mode in Safari.

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.

> 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?

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.

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.

Except you don't have to be a member to eat at Costco.

You have to be a member, or accompanying a member, to walk in the door. The hot dogs lie beyond the checkpoint.

The membership checkers are there to give members the feeling of exclusivity and belonging. They do not generally turn people away and will accept basically any reason from "meeting someone" to no response at all, in my experience. But I haven't been to more than half dozen Costco's, so can't speak broadly.

I think their primary purpose is to ensure that nobody who isn't a member or forgot their membership card gets in the checkout line and slows it down.

I suspect "where are you going with that $2000 TV?" plays a role, too.

You do not need to be a member to access the food court, alcohol sales, or pharmacy. You will need to stop at member services and wait in line to get a temporary pass. It's a deliberate hassle, but by various laws Costco can't stop you from accessing those services.

Almost every Costco I've been to, the food vending is a window on the outside of the building (so before the checkpoint).

And, at the ones where the food vending is on the inside, it's on the "paid" side of the cash registers. You can get to this area just by claiming you're "going to member services", since that's also on that side, and it's where you go when you forget your card (and so can't show membership at the checkpoint).

Source: Have forgotten my card a lot.

* Almost every Costco I've been to, the food vending is a window on the outside of the building (so before the checkpoint).*

I've never seen a Costco with the food vending in a window on the outside of the building. I've always seen it against the wall after the checkout. Which is also after the checkpoint.

I think a window on the outside of the building only works in moderate climates. I don't see it working in Phoenix or Minneapolis.

Many Southern California and Florida locations have the entire Costco food-court outside.

You can definitely get alcohol w/o a membership. I think it might be a state-by-state thing, but in some states it’s illegal to require a membership for alcohol purchases, so you can buy alcohol even if you don’t have a Costco membership.

The food court I'm not as sure about, but in both cases I've walked into a Costco with no membership and they were fine with it.

Neither being a member or being accompanied by a member is required to walk in the door. You don't even need to be a member to shop there provided you have a Costco Cash Card [0]. As well, there are at least a few Costcos where the concession stand is outside [1]

[0]https://www.costco.com/Costco-Cash-Card.product.10024438.htm... [1]https://www.google.com/maps/place/Costco+Wholesale/@37.25296...

So if I give my Costco-member friend $100 and ask her to buy me four $25 Costco Cash cards, would that let me make four trips without buying my own membership? That seems like all I'd need in a year...

This is accurate. You need only to have a costco cash card to get the Costco price on the goods in store. That cash card does not need to encompass the entire price of the transaction, as your credit card can make up the rest.

I've heard this touted as a "hack" but this makes absolute economic sense for Costco -- they get an advance on your purchase and get you into the store to potentially see the value in signing up.

Oh, I absolutely intended to buy more than $25 of stuff each visit!

I just didn't imagine they'd let me say "Um, yeah, put $1 on my Costco Cash card, and the other $399 on my Visa".

I tried that for a while in lieu of membership. Their employees certainly gave me a hard time over this: stink eye, calling the manager, chiding me for doing this loudly and openly, etc.

Thus, while it is possible, their devout employees don't like it and go out of their way to make one feel like a leper for not being a member.

You can walk in the exit, and straight to the food court.

While true I don't think this is widely known, and even less widely practiced. For those who are unaware, you just need go in through the exit to avoid the card checkers and that's where the food is.

We have a Costco here in FL where the food court is outside, order window, soda machines, tables. Everything

Same here in CA. I imagine it depends largely on the typical weather at that location.

That's not true everywhere. A number of Costco's have the food court outside the building.

Just tell them you're going to the pharmacy, they'll happily point you to where it is and you can then go wherever you want.

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.

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

The modern world. Milk no longer goes bad quickly.

Maybe neither you nor grandparent know about UHT treatment of milk, and how it's common outside America and uncommon inside.

Seems to be at every single grocery store I have ever shopped in for the past at least 5 years.

Not every milk is UHT but every grocery store offers it.

> Not every milk is UHT but every grocery store offers it.

But what about Costco (or other bulk-only sources), which is, really, the whole point of the thread (and original comment)?

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.

UHT pasteurization

Sell by dates for eggs and milk vary by state in many cases, for milk I believe Montana has the strictest one (10-12 days after pasteurization) but I've seen references to at least 20 states having their own regulations.

Sell by dates are basically a fiction. https://www.fsis.usda.gov/wps/portal/fsis/topics/food-safety...

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

I wouldn't call UHT milk common. According to Wikipedia[0], it's less than 10% in Denmark, Greece, Norway, Finland, Sweden, Singapore and the U.K.

It seems the only places where it's "common" are Italy, Turkey, Switzerland, Germany, Czech Republic, Brazil, Portugal, Spain, France, and Belgium.

[0]: https://en.wikipedia.org/wiki/Ultra-high-temperature_process...

Fresh whole milk freezes ok, and only takes a few days to thaw out in a fridge. Same with bread, btw.

(To be fair, I think I'm the only person I know who does this)

I've known people to freeze bagels. Apparently they toast more or less equivalently compared to bagels stored above freezing.

This is correct. I don't eat enough bread (or bagels) to warrant buying entire loaves at a time, even, and they will grow mold before I can eat them. Freezing them works great for me and prevents mold.

Yeah, you can't tell the difference. You can even microwave them for 30 seconds instead of slowly defrosting and if you're toasting you can't really tell the difference.

Bread and milk are considered by most people to be perishable -- they go bad within a few weeks of purchase.

Non-perishable goods are canned or sealed items that can be kept for years in cool, dark, dry places.

Frozen bread lasts for ~6 months to a 1 year. Which is hardly going to be an issue for most people.

Unopened milk does not last nearly as long. Still, it can last for ~3 weeks at home depending on how it's preserved, how old is was when you got it, and if you keep your fridge cold enough. Which again should be plenty if you actually use milk.

Most people don't freeze bread and I think most people have probably experienced not finishing a carton of milk fast enough or having bread go moldy on them.

Really the trick to bulk buying (besides liberal use of your freezer) is only bulk-buying things you actually use a lot of. I'll buy tomatoes at Costco because I'll eat them but I don't eat nearly enough apples for buying a massive thing of apples to make sense.

Interesting re their return policy, could you expand on that?

I'm only consuming "far more than I normally would" if I'm routinely throwing away things I bought from CostCo, unconsumed.

I don't. Nor does anyone else I know.

It's just consumption moved around in time.

I know, I know, it may be aesthetically distasteful to you to see people walking out with 36 rolls of toilet paper instead of six. It may be hard not to sneer at the poor people trapped on the capitalist treadmill.

But you should get over it, because in most ways you're better off when people shop at CostCo, because buying that way and storing things at home for a time is much more packaging and environmentally efficient that packing things into little bundles to be bought every day. And buying like that also minimizes the little bites being taken out by middlemen who are doing the packaging into little bundles. And a car trip taken to CostCo that fills the car is more efficient than lots of little trips to the grocery store.

I mean, I agree, in the sense that I also like to buy in bulk and save a lot on things I use a lot this way. But it is true that a membership makes people shop at a store more to "get their money's worth" for the membership.

> And a car trip

I suspect this is the real source of the hostility, rather than aesthetics: Costco represents, in general, a larger-land-footprint, car-dependent, suburban (or even semi-rural) lifestyle.

There's likely something of a false dichotomy at work here, as well, in that there could be Costco-compatible dense-city living, but that doesn't seem to be true currently.

I shop at Costco regularly (once every two weeks at least, sometimes weekly). Yes I gasp drive a car. But I put less than 3k miles on my car a year since I work from home. Maybe shopping at Costco isn't the problem for most people. It's working in an office.

To clarify, my point wasn't about the driving itself, but rather, what both driving and Costco (and bulk purchases in general) represent, which is incompatible with a walkable, high-density city.

I'm confident some people also object to the car use itself, but that's way too general a topic.

A few things you can do at Costco without a membership:

  * Eat at the food court
  * Buy alcohol (in certain states, see below)
  * Get an eye exam
  * Get your hearing checked
  * Fill prescriptions at the pharmacy

States where you can buy alcohol w/o a membership:

  * Arizona
  * California
  * Connecticut
  * Delaware
  * Hawaii
  * Indiana
  * Massachusetts
  * Michigan
  * Minnesota
  * New York
  * Texas
  * Vermont

P.S. Looking for a better source, but here's a general list: https://thekrazycouponlady.com/tips/money/6-things-you-can-d...

San Francisco's Costco does not let you into the food court.

I think I once read somewhere that they allow it if the food court is located outside

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