If you're the observant sort of shopper who wants to get the most out of every dime, it's
possible you've noticed that Costco's fully cooked, 3-pound rotisserie chickens are actually
cheaper than their uncooked ones.
They're also among the cheapest rotisserie chickens around, making this a deal that seems
too good to be true.
"so, you got money?"
"Not a penny.
But I'll still take that chicken!"
In fact, the chicken is so cheap, it doesn't seem like Costco could even make money selling
them.
And yet, Costco continues to sell them for $4.99 while their competitors have raised
prices.
So what's going on here?
To get the answer, first we have to jump in the Wayback machine for a look at the avian
flu crisis of 2015, which threatened the entire US poultry industry.
With countless birds lost, Barclays analyst Meredith Adler asked Costco's chief financial
officer Richard Galanti if this would finally result in the company raising prices.
He said,
"I can only tell you what history has shown us: When others were raising their chicken
prices from $4.99 to $5.99, we were willing to eat, if you will, $30 to $40 million a
year in gross margin by keeping it at $4.99.
That's what we do for a living."
Why would Costco leave tens of millions of dollars in potential profits on the table
if they could sell the chicken for more?
Because they think they can make even more money by selling chicken cheaper.
Costco first began selling their $4.99 chicken in 2009 and it was an instant hit.
Just a year later, Costco sold 51 million rotisserie chickens, and by 2017 that number
was up to 87 million.
That's a lot of customers coming through the door looking for chicken, which is why Costco
keeps their chickens all the way in the back of the store.
Many other chains use the same strategy of luring customers into their stores with cheap,
delicious chicken.
Don Fitzgerald, vice president of merchandising at the Kroger-owned Mariano's, told the Wall
Street Journal that it's all about getting people in the door — and then pouncing with
high profit margin add ons.
"If they get a chicken, a salad, and maybe they pick up a bottle of wine — now we're
really talking."
While Costco isn't the only player in the rotisserie chicken game, they're taking steps
to go above and beyond their competition.
Since they started selling, they've invested in larger, high-efficiency ovens, and containers
made with less plastic, both of which help keep their costs down.
And, in 2018, The Seattle Times reported Costco was investing hundreds of millions of dollars
in a massive chicken farm located in eastern Nebraska.
The centrally-located state was chosen, in part, because of the large corn and soybean
production there, which will save Costco on feed costs.
That's important, because they're going to have a lot of chickens to feed: an estimated
100 million a year.
The only downside, of course, is a less personalized chicken experience than you might get from
a boutique dealer.
"the chicken you'll be enjoying tonight…" "you have this information, this is fantastic!"
"Absolutely!
His name was Colin."
And there are other plans in the works, too.
They're in talks to raise hundreds more chicken barns, and while it's a hefty initial investment,
it's going to help their keep costs low in the future.
Of course, none of that explains why Costco's uncooked chickens are actually more expensive
than their cooked chickens, which seems backwards.
After all, they're doing all the work so you don't have to!
"What are we supposed to do with that?"
"eat it."
"Eat it?!
The f-----'s alive!"
But Time Money suggests there may be a sneaky reason for this too — cooked chickens are
going to go bad faster, and they want to keep them at a price point that'll make sure they're
continuously going out the door.
They definitely do at that price!
It's also worth noting that rotisserie chickens aren't the only products Costco has said they'll
keep at these insanely, super-low prices.
According to Time, Costco's jumbo hot dog and drink deal has been priced at $1.50 since
the mid-1980s.
It's all about increasing foot traffic, and that's been particularly challenging for stores
like Costco, which generally aren't located in super-convenient areas where people might
pop in regularly to see what's on the shelves.
People need a reason to make the trek to Costco, and what's a better reason than a quick and
tasty low-cost dinner that's ready to serve?
And besides.
Passing up the chicken might make them angry.
And you don't really want to get the rotisserie chicken angry, do you?
"I don't know, I think they're kind of cute, this one just walked right up to me and…"
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