Walk into any Costco today and grab a hot dog combo for $1.50 – the exact same price it was in 1985. While everything else has doubled or tripled in cost, this legendary deal has stayed frozen in time. The story behind how Costco keeps this price locked involves death threats, secret factories, and a business strategy that sounds completely crazy until you understand what’s really happening.
The CEO literally threatened to kill someone over the price
Former Costco CEO Craig Jelinek once walked into his boss’s office with what seemed like a reasonable suggestion. With inflation eating into profits, he wanted to raise the hot dog combo price from $1.50 to $1.75. Nobody would complain about a 25-cent increase, right? Wrong. Co-founder Jim Sinegal’s response was swift and terrifying: “If you raise the effing hot dog, I will kill you. Figure it out.”
This wasn’t just tough boss talk – Sinegal meant every word. He later told reporters that if the hot dog price ever goes up, it means he’s dead. The hot dog had become more than food; it was Costco’s brand identity. Sinegal knew that messing with this sacred combo would break the trust millions of customers had in the company. So Jelinek had to get creative, and what happened next changed everything about how Costco operates.
Costco built entire factories just to make hot dogs
Most companies would just accept higher supplier costs and pass them along to customers. Not Costco. When Hebrew National hot dogs became too expensive to maintain the $1.50 price, Costco built their own hot dog factories from scratch. They constructed one facility outside Los Angeles and another in the Chicago area, completely dedicated to producing millions of Kirkland Signature hot dogs every year.
Building manufacturing plants just to keep a food court item cheap sounds insane, but it worked. These aren’t just regular factories either – they’re massive operations designed to pump out consistent, quality hot dogs at the volume Costco needs. The company now controls every aspect of production, from sourcing beef to packaging the final product. This level of vertical integration is almost unheard of in retail, especially for something as simple as a hot dog.
The hot dogs actually got bigger over time
While most companies shrink their products to hide price increases, Costco went the opposite direction. The original Hebrew National hot dogs were a quarter-pound, but today’s Kirkland hot dogs are 10% bigger at 4.4 ounces. Plus, the drink upgraded from a 12-ounce can to a 20-ounce fountain drink with free refills. So for the same $1.50 you paid in 1985, you’re actually getting more food and drink today.
This reverse shrinkflation is practically unheard of in the food industry. Most people don’t even realize they’re getting a better deal now than customers got 40 years ago. The bigger hot dog uses premium all-beef ingredients, and the larger drink means families can easily share one combo. Costco didn’t just maintain the price – they improved the entire package while keeping costs the same.
They lose money on every single hot dog sold
Costco doesn’t make a profit on hot dog combos – they actually lose money on each one. This strategy, called loss-leader pricing, means selling popular items below cost to attract customers who’ll spend money on other things. The hot dog gets people through the door, and once they’re inside, they end up buying a 50-pound bag of rice or a new TV. The real money comes from membership fees and bulk purchases.
Think about it: where else can you get a massive all-beef hot dog and a large drink for $1.50? McDonald’s charges more than that for just a small soda. Costco sells millions of these combos knowing they’re losing money on every single one. It’s a calculated gamble that pays off through customer loyalty and increased store traffic.
The switch from cans to fountain drinks saved serious money
One of the smartest moves Costco made was ditching individual soda cans for fountain machines. Fountain drinks cost pennies compared to canned sodas, and they can offer unlimited refills without breaking the bank. This single change probably saved the company millions of dollars annually while actually improving the customer experience. Nobody complains about getting more soda for their money.
The fountain setup also allows Costco to control portions and reduce waste. Instead of stocking dozens of different canned beverages, they just need syrup for a few popular drinks. The machines are cheaper to maintain than constantly restocking coolers, and customers love being able to mix drinks or get refills. Sometimes the simplest changes make the biggest difference in keeping costs down.
Free toppings add more value without breaking the budget
Walk up to any Costco food court and you’ll find an impressive spread of free toppings: onions, relish, mustard, ketchup, and sauerkraut. These aren’t cheap plastic packets either – they’re proper dispensers with quality condiments. The free toppings make a $1.50 hot dog feel like a $5 meal from anywhere else. Most fast-food places charge extra for basic additions, but Costco includes everything.
The psychology behind free toppings is brilliant. Customers feel like they’re getting incredible value, even though condiments cost Costco very little. These free extras are specifically focused on the hot dog combo, creating a sense of exclusivity. People will wait in line for a Costco hot dog when they could grab fast food elsewhere, simply because the perceived value is so much higher.
The new CFO had to publicly promise to keep the price
When longtime CFO Richard Galanti stepped down in 2024, panic spread among Costco fans. During his final interview, Galanti said the $1.50 price was “probably safe for a while” – hardly the ironclad guarantee people wanted to hear. Social media exploded with worried customers wondering if the new leadership would finally cave to inflation pressure and raise prices on the beloved combo.
New CFO Gary Millerchip quickly realized he needed to calm the storm. During a quarterly meeting, he told shareholders and analysts: “To clear up some recent media speculation, I also want to confirm the $1.50 hot dog price is safe.” That single statement probably prevented thousands of membership cancellations. The hot dog price has become such an important part of Costco’s identity that any hint of change sends customers into a frenzy.
Kirkland hot dogs aren’t kosher like the originals
One major change that many customers don’t realize is that the original Hebrew National hot dogs were kosher, but the current Kirkland Signature versions are not. When Costco switched suppliers to control costs, they had to make compromises in the production process. For customers who specifically sought out kosher hot dogs, this was a significant change that happened quietly without much fanfare.
This switch highlights the difficult choices companies face when trying to maintain low prices. Hebrew National’s kosher requirements added production costs that made the $1.50 price impossible to maintain. Costco had to choose between keeping the price low or maintaining kosher certification, and they chose the price. Most customers never noticed the difference in taste, but it shows how seriously Costco takes cost control.
Members renew at 90% specifically for deals like this
The hot dog combo is just one example of how Costco builds extreme customer loyalty. The company maintains a 90% membership renewal rate, which is almost unheard of in retail. People pay $60 to $120 annually just for the privilege of shopping there, and deals like the $1.50 hot dog make that membership feel worthwhile. The food court has become a destination in itself, with families making regular trips just for cheap meals.
Some customers joke that the membership pays for itself through food court savings alone. A family of four can eat lunch for $6 at Costco’s food court, compared to $30 or more at most restaurants. People even throw parties at Costco food courts and come in wedding attire to celebrate with hot dogs. This kind of emotional connection to a simple food item creates customers for life.
The $1.50 hot dog represents something bigger than cheap food – it’s proof that some companies still prioritize customers over profits. While everything else gets more expensive, this one constant reminds us that incredible value still exists if you know where to look. Next time you’re at Costco, grab a hot dog combo and appreciate the insane lengths they go to keep that price locked in time.
