4 ms·

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 c

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.

achille 8y ago
> 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 https://www.ams.usda.gov/mnreports/pywretailchicken.pdf > Rotisserie, Under 2lb, Norwest cost is $5.73/lb on average
- Avshalom 8y ago
  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.
- ams6110 8y ago
  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.
qubex 8y ago
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.
- fencepost 8y ago
  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.
  - kurthr 8y ago
    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-the-highest-profit-margin-items-on-the-menu-for-restaurants-and-fast-food-restaurants https://www.quora.com/Are-the-drinks-and-beverages-normally-...
    - birdman3131 8y ago
      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.
      - fencepost 8y ago

achille 8y ago

> 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 https://www.ams.usda.gov/mnreports/pywretailchicken.pdf > Rotisserie, Under 2lb, Norwest cost is $5.73/lb on average

Avshalom 8y ago
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.
ams6110 8y ago
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.

qubex 8y ago

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.

fencepost 8y ago
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.
- kurthr 8y ago
  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-the-highest-profit-margin-items-on-the-menu-for-restaurants-and-fast-food-restaurants https://www.quora.com/Are-the-drinks-and-beverages-normally-...
  - birdman3131 8y ago
    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.
    - fencepost 8y ago