• February 1, 2023

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As every Costco shopper knows, Costco has a ¼ lb. hot dog and a 20-ounce soda for $1.50. It is a terrific buy, and many customers worry that prices would be raised at this inflationary time. It was dispelled when Bob Nelson, Costco’s SVP finance assured analysts and investors that the price would remain the same.

Nelson said “the price, when we introduced the hot dog and 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.”

Co-founder Jim Sinegal jokingly threatened to “kill” current CEO Craig Jelinek if the combo price was changed. Sinegal is quoted as saying “we are known for that hot dog. That’s something you don’t mess with.” Management several years ago switched from Hebrew National brand to Costco’s own Kirkland brand in order to maintain quality and price.

There are several other items that established Costco’s value pricing. This included the rotisserie chicken at $4.99, the same price since its introduction in 2009. Management told us about the $450 million poultry plant they built in Fremont, Nebraska especially for that rotisserie chicken.

Other items that Costco froze the price of include a whole cheese pizza for $9.99. There is also toilet paper, Costco’s biggest seller, that has not moved in price. However, inflation forced the company to increase many prices on many items in the dairy, meat and grocery departments, but it appears that the company continues to absorbs some of the prices.

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Retail Wire quotes Numerator that said in their June issue that club stores have maintained the “most stable grocery prices in 2022, with inflation rate between 6.9 percent and 8.2 percent year over year while industry prices in May surged a record 14.6 percent year over year.

Costco’s gasoline prices are very price-competitive in every trading area. It has been sharpened with a new Costco/Visa
V
credit card that grants 4 percent payback for every gallon purchased. This certainly makes shopping at Costco almost mandatory if you live nearby.

Merchandise that Costco sells has minimal operating profits. It does have about 60% of its income from annual membership. Recently the company prided itself of a retention rate of members at about 93 percent.

POSTSCRIPT: Today, Costco is a defensive stock. We are facing a recession, and Costco’s constant effort to maintain low prices for its members is reassuring for investors as well as shoppers. Management has expanded its big-ticket specials, adding to the sales volume. Even at current prices, I think the stock is a buy.

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