Of course, Costco knows what they're doing, because if you're in the store to buy some chicken, you will likely look at other things as well. Here's why Costco only charges $5 for a rotisserie chicken.
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00:00If you're the observant sort of shopper who wants to get the most out of every dime,
00:04it's possible you've noticed that Costco's fully cooked,
00:06three-pound rotisserie chickens are actually cheaper than their uncooked ones.
00:10They're also among the cheapest rotisserie chickens around,
00:13making this a deal that seems too good to be true.
00:16So, you got money?
00:19Not a penny. I'll still take that chicken.
00:23In fact, the chicken is so cheap, it doesn't seem like Costco could even make money selling them.
00:27And yet, Costco continues to sell them for $4.99, while their competitors have raised prices.
00:32So, what's going on here? To get the answer,
00:35first we have to jump in the Wayback Machine for a look at the avian flu crisis of 2015,
00:39which threatened the entire U.S. poultry industry.
00:41With countless birds lost, Barclays analyst Meredith Adler asked Costco's
00:45chief financial officer Richard Galante if this would finally result in the company raising prices.
00:50He said,
00:50"...I can only tell you what history has shown us.
00:52When others were raising their chicken prices from $4.99 to $5.99,
00:56we were willing to eat, if you will, $30 to $40 million a year
00:59in gross margin by keeping it at $4.99. That's what we do for a living."
01:03Why would Costco leave tens of millions of dollars in potential profits on the table
01:06if they could sell the chicken for more? Because they think they can make even more
01:10money by selling chicken cheaper. Costco first began selling their $4.99 chicken in 2009,
01:15and it was an instant hit. Just a year later, Costco sold 51 million rotisserie chickens,
01:20and by 2017, that number was up to 87 million.
01:23That's a lot of customers coming through the door looking for chicken,
01:25which is why Costco keeps their chickens all the way in the back of the store.
01:29Many other chains use the same strategy of luring customers into their stores with
01:32cheap, delicious chicken. Don Fitzgerald, vice president of merchandising at the Kroger-owned
01:37Mariano's, told the Wall Street Journal that it's all about getting people in the door,
01:41and then pouncing with high-profit margin add-ons. If they get a chicken,
01:44a salad, and maybe they pick up a bottle of wine, now we're really talking.
01:48While Costco isn't the only player in the rotisserie chicken game, they're taking steps
01:52to go above and beyond their competition. Since they started selling, they've invested in larger,
01:56high-efficiency ovens and containers made with less plastic, both of which help keep their costs
02:00down. And in 2018, the Seattle Times reported Costco was investing hundreds of millions of
02:05dollars in a massive chicken farm located in eastern Nebraska. The centrally located state
02:10was chosen in part because of the large corn and soybean production there, which will save
02:13Costco on feed costs. That's important, because they're going to have a lot of chickens to feed,
02:18an estimated $100 million a year. The only downside, of course,
02:21is a less personalized chicken experience than you might get from a boutique dealer.
02:25The chicken you'll be enjoying tonight…
02:27You have this information? This is fantastic.
02:29Absolutely. His name was Colin.
02:31And there are other plans in the works, too. They're in talks to raise hundreds more chicken
02:35barns. And while it's a hefty initial investment, it's going to help keep their costs low in the
02:39future. Of course, none of that explains why Costco's uncooked chickens are actually more
02:43expensive than their cooked chickens, which seems backwards. After all, they're doing
02:47all the work so you don't have to.
02:50What are you supposed to do with that?
02:51Eat it.
02:52Eat it? F---- is alive!
02:54But Time Money suggests there may be a sneaky reason for this, too. Cooked chickens are going
02:58to go bad faster, and they want to keep them at a price point that'll make sure they're
03:02continuously going out the door. They definitely do at that price. It's also worth noting that
03:06rotisserie chickens aren't the only products Costco has said they'll keep at these insanely
03:10super low prices. According to Time, Costco's Jumbo Hot Dog and Drink deal has been priced
03:15at $150 since the mid-1980s. It's all about increasing foot traffic, and that's been
03:19particularly challenging for stores like Costco, which generally aren't located in super convenient
03:24areas where people might pop in regularly to see what's on the shelves. People need
03:27a reason to make their trek to Costco, and what's a better reason than a quick and tasty
03:31low-cost dinner that's ready to serve? And besides, passing up the chicken might make
03:35them angry. And you don't really want to get the rotisserie chicken angry, do you?
03:39I don't know. I think they're kind of cute. I mean, this one just walked right up to me.