Why Is Costco's Rotisserie Chicken So Cheap?
Rotisserie chicken is a quick, easy meal with frequent leftovers. Couple that with the fact that Costco's ready-to-eat version costs less than raw chicken, and it might be tempting to give up cooking altogether. So why exactly does Costco's four-pound bird cost a paltry sum of $4.99, and why don't they raise the price?
When Barclays analyst Meredith Adler asked Costco CFO Richard Galanti this question in 2015, he responded, "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."
In other words, it's their business philosophy—plain and simple. (The company has the same rule about keeping their concession hot dogs and soda at an inflation-ignoring $1.50.) Some were skeptical, though. According to Money, a more likely explanation is that the chicken is a "loss leader" that's meant to lure customers into the store later in the day—especially around dinner time. The hope is that these hungry customers will pick up a few other items they wouldn't have bought otherwise. As CNBC points out, that's why the rotisserie chicken counters are strategically located at the back of the store.
One other theory is that Costco sometimes has a high supply of chickens, and instead of throwing them away when they're about to expire, they cook them and sell them as ready-to-eat food. After all, making less money is better than making no money at all. "What's more, if the rotisserie chickens don't sell, the meat can be used in soup, chicken salad, and other profitable deli items," Money writes.
Whatever the exact reason, Costco is going to great lengths to hold its prices steady. According to Eater, the company will be launching its very own chicken farming operation in Nebraska. That way, it will no longer be entirely dependent on the chicken "monopoly" dominated by companies like Tyson and Perdue, whose prices have increased in recent years. Costco plans to raise 100 million chickens annually, which will supply them with 43 percent of the poultry needed for its rotisserie chicken counter, as well as one-third of the raw birds needed to stock the meat section. The company has already broken ground on a poultry processing facility in Fremont, Nebraska (roughly an hour outside of Omaha), and it also plans to construct a feed mill and over 500 barns.
It looks like families will continue serving up $5 rotisserie chicken for some time to come.