Here's Why Costco Keeps Its Food Court Prices So Low

There is a story about how Costco's low food court prices fully demonstrates the brand's appeal. The big-box warehouse famously charges only $1.50 for a hot dog and soda combo, which hasn't increased since 1985. When former CEO W. Craig Jelinek joined the company, he was shocked it was still that cheap and he told Costco founder Jim Sinegal the store needed to raise the price. Sinegal told him, "If you raise the effing hot dog, I will kill you. Figure it out." That playful (hopefully) threat has gone done in Costco lore as a perfect example of its commitment to low prices. But why are cheap food court prices so important to the company?

There are two big reasons; one practical, one philosophical. The first is that Costco's food court items are a classic example of "loss leaders." This is the practice of deliberately charging below cost on certain items to draw customers into the store and retain their loyalty. Keeping food court prices low sends a message to Costco shoppers that the store is putting their experience first. The company makes up for what it loses on food court items by charging a little more for other items in the store. Costco also likes to encourage customers to spend time exploring the huge store and finding new deals and having a cheap food court entices people to stay longer.

The other big reason behind Costco's affordable food court is part of founder Sinegal's philosophy — you build trust with customers by doing the right thing. Short term cash outs and cost cutting measures may be tempting, but people value a company that treats them right, even when it's difficult. This has extended to how Costco treats its employees, and the company is consistently rated as one of the best large employers to work for. The food court feeds into the narrative of respect towards customers; if they know they are getting an amazing deal on food, they are more confident Costco is charging them fairly on other items.

While the hot dog combo is the most famous example of Costco's food court bargains — it reportedly sells around 200 million a year — it's hardly the only one. There are Costco's outrageously affordable rotisserie chickens that are still priced at only $4.99. People love Costco's extra-cheesy pizza and the huge slices are only $1.99, while an entire pizza is $9.99. And then you have the beloved cheese and bacon stuffed chicken bake at just $3.99. Considering the quality of the food is also quite high, the warehouse store offers some of the best bargain meals in the country. And that's just how Costco likes it.