In July 2013, I wrote a post on EconLog titled “The Economics of Self-Imposed Price Ceilings.” The case in point was the Costco hot dog. I pointed out that by keeping the price of a hot dog and a soda with free refills at $1.50, Costco over time, to reduce losses, reduced the quality of the product. I might have been wrong in saying that the new hot dog is inferior to the old Hebrew National brand. The brand that Costco shifted to is still quite good.
But I was not wrong in saying that Costco quit letting the customer turn a crank that yielded sauerkraut and instead put sauerkraut behind the counter.
Two further changes have happened, one that I noticed in the last year or two and one that I noticed today. At some point in the last year or two, Costco discontinued the behind-the-counter sauerkraut.
Today, I noticed another change. Costco has discontinued the onions that you used to get by turning the crank. So now all you get is mustard, ketchup, and relish.
In case you’re wondering, of course I’m not advocating that a government agency regulate Costco’s choices about hot dogs. I’m simply pointing out predictable consequences of price freezes in a time of inflation even when the freezes are self-imposed.
READER COMMENTS
Craig
Apr 11 2024 at 8:15am
Guess its a form of shrinkflation. See similar at McDs — the refill fountains in most restaurants are gone. I believe Costco uses Sabretts though that obviously could change depending on location, I suppose.
Knut P. Heen
Apr 11 2024 at 9:36am
Why don’t they hand out invisible hot dogs for free?
David Seltzer
Apr 11 2024 at 2:29pm
Knut: I can’t see why? Sorry Knut. I couldn’t resist the low hanging hot dog …er…fruit.
Junio
Apr 11 2024 at 11:42am
Interesting post. I’m curious, were most of the retailers during COVID-19 forced to ration certain goods or did most do it at their discretion?
David Henderson
Apr 11 2024 at 11:54am
Thanks. Most did it at their discretion.
Markus Murphy
Apr 11 2024 at 4:39pm
David, has the value actually declined? For my taste maybe, for my wife certainly not.
We both had a hot dog and soda yesterday while at our local Costco. I do miss the diced onions but I’m not sure I miss them as much as I enjoy the lower purchasing power needed to buy the hot dog combo. My wife on the other hand never ate any of the onions so for her the only thing that has changed is the price in real terms which has declined. (we both think the current dogs are as good or better than the old dogs)
Joy Schwabach
Apr 11 2024 at 4:56pm
I noticed that years ago with Der Wienerschnitzel in California. The bread was as good as any bakery’s and the meat was fantastic. When I tried it 20 years later, it was inedible. Same thing happened to Carls Jr. sandwiches. In the 1970s, their roast beef was amazing and so were the fixings. The same thing with Marie Callendar’s hamburgers, though their cafes did go out of business I believe, though I think their products are still in stores. Good thing I’m a vegan now (more specifically a Nutritarian of which veganism is just one form). What amazes me is how they stay in business with an inferior product. Is it because loyalty trumps all, or nostalgia? Or did the next generation have lower standards? Or is it simply, as you say, that the price is right and it’s just good enough?
Ann Linderman
Apr 12 2024 at 8:50pm
Marie Callender still has some restaurants around (we have a couple of them here in Las Vegas), although I keep expecting them to close down without warning at any time.
Grand Rapids Mike
Apr 11 2024 at 6:00pm
Another issue is why Costco have not raised the price by will say $0.25 or less to cover the cost of onions etc. The buck fifty price is a self imposed ceiling, so figure their research has concluded onions etc have no value to the average customer, those that want onions can ask for it.
So as a micro econ question, does the preference functions for Costco hot dogs include onions or not.
Paul
Apr 11 2024 at 6:53pm
I still find it amazing that Costco has been selling that $1.50 hot dog and soda since 1985, without ever increasing the price. Clearly, they lose money but many people presumably go into the store and buy stuff. Because the food court is usually outside, historically anyone could buy one even if you were not a Costco member. But I read recently that is or had changed and you now need to show a membership card to buy food (just like you do to buy their cheap gas).
Andrew_FL
Apr 13 2024 at 2:14pm
I have never encountered a Costco where the food service was outside.
Peter Russo
Apr 12 2024 at 11:25am
Two observations:
They also got rid of the everything pizza, which required having fresh chopped vegetables around, onions being a part it.
The seating area at my local has shrunk considerably. I don’t want to stand and eat so I find myself dissuaded from buying into the loss leader scheme in the first place.
dennis e miller
Apr 12 2024 at 2:46pm
Sometimes stores sell “loss leaders” that may lose money on their own but make money because it helps draw customers. I think that CostCo is holding the hot dog price steady as basically a marketing gimmick. Many people think it’s cool that the price hasn’t changed in forever, and it really is a small price for CostCo to pay to further customer loyalty.
As for claim of shrinkflation by the Biden admin and other Dems, that’s a distraction from the largest cause of inflation — Bidenomics. It’s silly to claim that companies are trying to sneakily raise effective prices by changing package size. As long as I can remember, since the days of 5 cent Milky Way candy bars that now sell for a buck, companies have changed sizes and prices. They usually even announce it on the label “new size” and if not, they still have to list the actual weight. So shrinkflation is only a “sneaky price boost” to people who don’t have their eyes open nor can do math.
David Henderson
Apr 12 2024 at 4:53pm
You write:
I agree. Notice that nothing in my post is about this but is, instead, about something else.
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