How Costco Rebuilt a Supply Chain Around a Hot Dog
Costco has sold the same hot-dog-and-soda combo for $1.50 since the mid-1980s. Keeping that number meant building two factories.
Around 2013, Craig Jelinek went to Costco's founder Jim Sinegal with a problem. The food court was losing money on the hot dog combo, which had been priced at $1.50 since the mid-1980s. Jelinek wanted to charge $1.75. Sinegal, by Jelinek's own retelling at a 2018 chamber-of-commerce talk, said: 'If you raise the effing hot dog, I will kill you. Figure it out.'
Figuring it out turned into a vertical-integration project. Costco had originally bought its hot dogs from Hebrew National. To take cost out of the bun, the company expanded a Tracy, California facility to start making its own Kirkland Signature hot dogs in 2011, then opened a second plant in Morris, Illinois in 2018. It later swapped Coca-Cola for Pepsi on the soda side to shave more off the bill of materials. The combo stayed $1.50.
The trick is volume. Costco moves roughly 200 million hot dogs a year through its food courts, more than every Major League Baseball stadium combined. At that scale, owning the plant is cheaper than buying the dog, and the food court itself is treated as a loss leader: a reason to renew the membership, not a profit center. The $1.50 isn't a sentimental holdover. It's the number Costco uses to advertise that the warehouse hasn't gotten any greedier than it was when you signed up.
Its current CFO, Gary Millerchip, said publicly in May 2024 that the price is 'safe.' The factory in Illinois suggests he means it.
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