Costco has famously kept the price of its rotisserie chicken at $4.99 for over a decade, even amidst rising inflation that has seen chicken prices increase by 18.6% between June 2021 and June 2022. This strategy is primarily because the chicken acts as a "loss leader," meaning it's sold at little to no profit, or even at a loss, to attract customers who then purchase higher-margin items like bulk toilet paper or other groceries. The company has explicitly stated its willingness to lose tens of millions of dollars annually to maintain this price point, viewing it as an investment in driving membership and overall sales.
Beyond being a loss leader, Costco has implemented vertical integration to control costs. In 2019, the company invested $450 million to establish its own poultry complex in Nebraska, named Lincoln Premium Poultry. This facility includes a feed mill, hatchery, and slaughter plant, and it contracts with local farmers to raise over 100 million birds annually. By owning each stage of the supply chain, from hatching to processing, Costco can reduce operating costs and save an estimated $0.35 per bird, allowing it to defy market price increases.
The $4.99 rotisserie chicken serves multiple strategic purposes for Costco. It reinforces the brand's image as a provider of great value, which encourages new membership sign-ups and renewals, crucial for the company's revenue model. Additionally, keeping the price constant during periods of high inflation generates positive public relations, portraying Costco as benevolent. This strategy has proven effective, as rotisserie chicken sales nearly doubled over the past decade to 106 million units, contributing to significant store traffic and subsequent purchases of other products.
