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Costco Considers Raising Membership Fees, But Not Hot Dog Prices

The warehouse club faces questions about some popular food items and its membership fee given current economic conditions.

Warehouse club members expect value. You pay Costco (COST) - Get Costco Wholesale Corporation Report, Walmart's (WMT) - Get Walmart Inc. Report Sam's Club, or BJ's Wholesale (BJS) a membership fee in exchange for getting access to their "clubs" where you pay less for groceries, household items, and more. 

It's a good deal for the members who get to lock in low prices. The arrangement also works well for the company as they lock in a captive customers base and that lets them negotiate better deals.

All three chains -- but more notably Costco and Sam's Club -- have a huge amount of buying power and stock a much smaller number of items than rivals like Target or Walmart. That allows the biggest warehouse clubs to go to their distributors and offer to buy in huge volume in exchange for better pricing.

Costco has led the way in doing this. It has also drawn a line in the sand when it comes to certain prices. The chain, for example, has gone to extreme lengths to keep selling its rotisserie chicken at $4.99. To keep that price, Costco literally bought a chicken farm (and even then it's likely losing money on every chicken it sells.)

The warehouse club has been willing to raise its membership prices about every five years, but it has held the line on rotisserie chicken and one other key food item.

Costco Hotdog Soda Lead JS

Will Costco Raise Its Hot Dog and Soda Price?  

Costco has offered a meal deal consisting of a hot dog and 20 ounce soda for $1.50 since 1985. The chain has taken real pride in not raising the price for this popular offering even as the cost of pretty much everything else sold anywhere has increased.

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Senior Vice President Bob Nelson spoke about the hot dog pricing during Costco's third-quarter earnings call. Nelson was standing in for vacationing CFO Richard Galanti who normally conducts the calls.

"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. 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," he said.

Costco has been emphatic about keeping its rotisserie chicken $4.99 and its hot dog and soda combo at $1.50. Both please members and serve as loss leaders. It's also likely very rare that a member visits just for a hot dog or a rotisseries chicken.

Will Costco Raise Membership Prices?

The warehouse club has not been as adamant about holding its membership prices steady. In fact, it has generally raised them every five years. It has been about that long since the last increase.

Nelson addressed the potential for a membership fee increase during the call.

"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. "But for today, we have nothing more specific to report in terms of timing."

Nelson also suggested that the optics may not be great for a price increase.

"In addition, given the current macro environment, the historically high inflation, and the burden it's having on our members and all consumers in general, we think increasing our membership fee today ahead of our typical timing is not the right time. We will let you know, however, when that changes," he added.