The History of Costco

Few corporate lines are as famous as the one a Costco co-founder gave his successor when the latter suggested raising the price of the hot-dog-and-soda combo. The answer was blunt and became internal legend: the combo would keep costing 1.50 dollars, whatever it took. That anecdote captures, better than any financial report, the philosophy that turned Costco into one of the most admired retailers in the world.

Costco's story is one of a radically simple idea: charge an annual membership in exchange for selling almost everything close to cost. A counterintuitive bet that today generates hundreds of billions of dollars in revenue.

The roots: Sol Price and the Price Club

The warehouse-club model wasn't born at Costco but at Price Club, whose first store opened on July 12, 1976, on Morena Boulevard in San Diego, founded by Sol Price and his son Robert. Sol Price is considered the father of the membership-club concept. Among his disciples was Jim Sinegal, who started as a grocery bagger at FedMart, one of Price's chains, in 1955.

The birth of Costco in 1983

Jim Sinegal and Seattle attorney Jeffrey Brotman opened the first Costco warehouse on September 15, 1983, in Seattle, Washington. Before the year was out they already ran stores in Portland and Spokane. From the start, Costco marked up its merchandise by just 8 to 9% over wholesale cost. In December 1985 it went public on the Nasdaq at 10 dollars a share, with 17 warehouses.

The model was almost a heresy to traditional retail. Instead of seducing customers with thousands of variants of every product, Costco deliberately offered few options, bought in enormous volumes to wring the best price out of suppliers. Instead of spending on flashy advertising, it stacked merchandise on pallets inside bare industrial sheds. And instead of profiting on every sale, it bet that the customer, having paid to get in, would come back again and again.

The merger that created the giant

In 1993, pressured by competition, The Price Company and Costco merged to form PriceCostco. In February 1997 the company reverted to simply Costco, and in 1999 it adopted the corporate name Costco Wholesale Corporation. The Price family eventually exited the business, and Sinegal's model prevailed as the guiding philosophy.

Hot dogs, chickens, and price discipline

Costco learned that some products aren't there to make money but to create loyalty. Its two icons prove it:

• The hot-dog-and-soda combo has cost 1.50 dollars, unchanged, since its 1985 introduction.
• The rotisserie chicken has held at 4.99 dollars since 2009; in 2015 the company acknowledged it was willing to sacrifice 30 to 40 million dollars a year in margin to keep that price.
• To control chicken costs, in 2019 Costco opened a roughly 450 million dollar poultry complex in Fremont, Nebraska.

Behind these gestures lies an almost sacred rule: no national-brand product is marked up more than 14% over cost, and no private-label product more than 15%. A typical supermarket runs 20 to 25%. Costco's real profit comes not from products but from membership fees.

If you raise the hot dog, I will kill you. Figure it out.

That line, attributed to Sinegal and recalled by his successor Craig Jelinek, is no empty joke. When the combo stopped being profitable, the solution wasn't to raise the price but to change the soda supplier. For Costco, the discipline of not raising prices is a promise to the customer.

Kirkland Signature and treating employees well

In 1995, Costco launched its private label, Kirkland Signature, named after its then-headquarters in Kirkland, Washington. Today it accounts for roughly a third of company sales. Unlike much of retail, Costco is also known for paying well: after a 2025 labor agreement, its average wage exceeds 31 dollars an hour, against an industry average of around 17, with extraordinarily low turnover.

Leadership, succession, and today's scale

Sinegal was CEO until January 2012. Craig Jelinek followed through the end of 2023, and since January 1, 2024, the company has been led by Ron Vachris, its third CEO ever, who famously started as a forklift driver in the 1980s. Co-founder Jeffrey Brotman, chairman for decades, died in 2017.

In fiscal year 2024, Costco reported net sales of 249.6 billion dollars, membership fee revenue of 4.8 billion, around 137 million cardholders, and a renewal rate near 90%. It operated some 891 warehouses across 14 countries.

That renewal rate near 90% is perhaps the most revealing figure of all. It means almost everyone who pays to be a member one year pays again the next, year after year. In a sector where loyalty is scarce, Costco got millions of people to pay voluntarily for the privilege of buying from it. The membership fees, moreover, are almost pure profit: the company's true financial engine isn't in the aisles, but in the card the customer carries in their wallet.

The lesson for any business is powerful: customer trust is built by giving up easy profits. Costco shows that surrendering margin on what's visible, and charging for belonging, can be a more durable model than squeezing every transaction.

The takeaway: sometimes the price you decide not to raise is worth more than everything you could have earned by raising it.

Sources

• Fox Business — https://www.foxbusiness.com/retail/history-costco
• Fox Business — https://www.foxbusiness.com/lifestyle/why-costco-hot-dogs-have-kept-1-50-price-tag-since-1985
• NPR — https://www.npr.org/2024/06/03/nx-s1-4990206/costco-hot-dog-price
• Fortune — https://fortune.com/2024/05/29/costco-ceo-ron-vachris-winning-strategy-formula-expansion-arrogant/
• Costco Wholesale Investor Relations — https://investor.costco.com/