Why Costco isn’t making money from its popular fried chicken

There are a few constants in life: death, taxes, and the $4.99 Costco fried chicken. In 2023 alone, the members-only wholesale club sold 137 million of the packaged birds. Fans of the product appreciate its delicious taste, juicy texture and irresistibly low price. But for all its appeal, does Costco actually make money from the popular birds, especially considering how cheap they are? The answer is no, Costco doesn’t make any money from the fried chicken. In fact, Richard A. Galanti, the company’s former CFO, noted in 2015 that Costco was more than willing to give up “$30 million, $40 million a year in gross margin” to keep the product at its current level Maintain price levels (via CNN). ). However, there is no public documentation of the exact financial losses caused by keeping the chicken cheap.

Still, it seems clear that Costco’s fried chickens are selling below market value and their price certainly hasn’t kept up with inflation. So if these spinning birds don’t exactly make a big profit for the company, why does Costco insist on selling the birds at such a loss? This is because the retailer’s fried chickens are what’s known as a “loss leader,” which actually makes the wholesale club a big profit, but not in the traditional way.

It may seem counterintuitive to sell an item at a loss since the goal of any business is to make a profit. However, sometimes selling a product for less than the cost of making it can actually help boost business. Essentially, a “loss leader” is a marketing method that involves selling a good or service well below its actual value. This encourages customers to engage with the company, which may lead them to purchase other more expensive (and profitable) products. This is probably why Costco sells its fried chicken at such a low price. The cheap fried birds attract customers, who are then more likely to load their huge shopping carts with more items. Additionally, Costco is working on a membership model so shoppers just pay to walk in the front door.

This makes the low price of fried chicken not only possible, but also seemingly sustainable for several decades. However, the same is probably not true for smaller companies. The loss leader strategy is quite risky, if not controversial, as it favors larger companies that can absorb financial losses. This can exclude emerging companies that operate on a lower profit margin. Still, Costco’s strategic use of loss leaders is central to its business model and extends to its popular food court. Costco may make its own hot dogs to cut costs, but it would be surprising if the price of $1.50, which has remained the same since the 1980s, was actually profitable.

Now, cheap chicken is all well and good, but there’s no doubt that the key to Costco fried chicken’s popularity goes beyond its low price. For decades, Costco customers have praised the product for its juiciness and rich flavor. But what is the secret to making the popular spider chickens so delicious? It turns out there are quite a few. For one thing, each chicken is injected with a saltwater solution before cooking, which increases both the moisture and flavor of the meat. Of course, this isn’t exactly a new trick, as “plumping” poultry with a saline solution has been a common (but palatable) practice in the industry for decades.

Then there’s the cooking method itself, which involves placing whole chickens on a rotating spit. As the chickens rotate, the juices drip onto the bottom spit, essentially dousing the birds with water as they roast. Rotisserie cooking works over a longer period of time and at a lower temperature than many other cooking methods. All of this together results in a juicier and more flavorful bird. Plus, Costco’s rotisserie chickens come off the shelf in just two hours, so every chicken is guaranteed fresh. Anyone who has tried it can attest to its quality, which is so excellent that customers sometimes even excitedly dig into the chicken before going home. Of course, you can always pick up a few products from the Costco food court to tide you over.