ENGAGE keynote: The thinking behind Costco’s hot dog special

You don’t have to be a CPA to recognize that the $1.50 hot dog special at Costco is special indeed.

Monday at the kickoff of the 10th AICPA ENGAGE in Las Vegas, CPAs munched on hot dogs while hearing from one of the architects of that iconic deal — a deal that has remained the same price since 1984.

It’s emblematic of the business plan that made Costco such a success, retired CFO Richard Galanti explained, but success has required much more than one enduring promotion.

“To sell merchandise at the lowest possible price and do it with a code of ethics, always doing the right thing — that’s really how it started,” Galanti said of Costco, the company that hired him in 1984 and that he helped build into a warehouse retail giant before retiring 17 months ago. “It’s not only fun to work for a company that’s been hugely successful, but a company where your customers and your employees like you and trust you — it was a great place to be.”

Galanti said that the company’s success meant he could have retired in his 50s, but, on Monday, he didn’t sound like someone who had truly retired. Galanti, known as “the voice of Costco” for his commentary on quarterly earnings calls, turns 70 this year.

Galanti shared the stage with actor and entrepreneur Ryan Reynolds. The two have worked together on several business ventures in recent years, and in Las Vegas they teamed up again to entertain and educate thousands of ENGAGE attendees. Their session title: “Business, Brilliance … and Hot Dogs.”

Costco’s hot dog special — an all-beef hot dog and a drink for $1.50 — isn’t solely responsible for the company’s success, but the story behind it aligns perfectly with how the company has thrived.

“Great quality merchandise at the lowest possible price, of all the value attributes out there, that’s front and center,” Galanti said. “And we did that better than anybody.

“Sell in bulk. Sell in larger sizes. Sell 3,800 items in that cavernous warehouse instead of 100,000 items like a Target or Walmart or 50,000 like a supermarket. All those things that were counterintuitive — limited selection, no credit card acceptance for the first 20 years. Two grades of gas, not three. Charge to come in to shop. All those things allowed us to lower the prices further and further.”

Precision execution of that plan allowed Costco to stick to certain principles, Galanti explained, while still turning a profit. One loyalty-building example among several is Costco’s customer-friendly return policy.

In the case of the hot dog special, Galanti said Costco has taken matters into its own hands. While it partners with a soda company for the drink portion of the offering — a key component in holding the price steady for more than 40 years — Costco now makes its own hot dogs in plants in California and Illinois that combine to produce about 400 million hot dogs a year.

— To comment on this article or to suggest an idea for another article, contact Bryan Strickland at Bryan.Strickland@aicpa-cima.com.