How Costco Makes Money, Despite $1.50 Hot Dog Combos

Core Insights - Costco's $1.50 hot dog combo is not a loss leader but a symbol of its business model, indicating the company's ability to maintain low prices while managing costs effectively [2][8] Cost Management - Costco operates two meat-processing plants to produce its own hot dogs, which helps keep costs low, allowing the company to break even on hot dog sales [4][5] - The average cost for a vendor to prepare a hot dog with bun and condiments ranges from $0.45 to $0.80, while a cup of Coca-Cola costs between $0.10 and $0.20, leaving Costco with approximately $0.50 to cover other expenses [4] Private Label Strategy - The launch of Kirkland Signature in 1995 aimed to consolidate over 30 privately owned products under one brand, enhancing cost control and product differentiation [7] - As of 2025, Kirkland Signature products account for 12.5% of Costco's assortment but contribute significantly to revenue, making up 23% of total revenue in 2024, with margins up to 15% [9] Membership Revenue - Recurring membership fees serve as a primary profit engine for Costco, supporting its low-price strategy and overall business model [8]