5 Things You Probably Didn't Know About Costco

The market's surprised that Costco (NASDAQ: COST  ) proved mortal this morning, coming up short on the top and bottom lines in its latest quarter. However, there's more to the popular warehouse club than simply ending a long streak of quarterly beats. 

Let's go over a few things that you may or may not have known about Costco.

1. Costco employees stick around.
The past few months have seen Costco's generous hourly wages come up in arguing that Wal-Mart (NYSE: WMT  ) or fast-food giants should be paying more.

The difference is substantial.Costco's hourly rate of $20.89 must be embarrassing to Wal-Mart, which pays its full-time hires an average of $12.67. There's a clear benefit to paying more, and that comes in the form of worker loyalty. Knowing that they are unlikely to make as much elsewhere, Costco employees stick around. 

Founder and former CEO Jim Sinegal spoke to our own Tom Gardner last year, explaining that average turnover at Costco is 10% in the U.S. and Canada, and that includes all seasonal and part-time help. Sinegal heard at the time that Wal-Mart's annual turnover is closer to 60%. After a year on the job, Costco's turnover rate drops to 5%, meaning that just 1 in every 20 hires leaves in any given year after his or her rookie season at the company.

2. That hot dog and cola combo has always been $1.50.
One of the more magnetic draws at Costco is the hot dog and soft drink combo that's been offered at the same $1.50 price through its concessions stand since it was introduced in 1985. Yes, that's 28 years of inflation-busting consistency.

If you figured that Costco sells a ton of these pocket-change combinations, you're right. The retailer went through 109 million combos last year. There have been a few changes along the way. Coke became Pepsi. Hebrew National franks became Kirkland Signature. However, the soft drink did go from a 12-ounce serving to a 20-ounce cup with unlimited refills. A great deal did get even better.

3. Costco sells less food than you probably think.
It's easy to call Costco a gargantuan grocery store, but it generates more revenue from its non-food products.

Over the past three fiscal years, fresh food has accounted for 12% to 13% of total sales. What Costco categorizes as "food" -- the dry and institutionally packaged bulk offerings that many associate with the chain -- has held steady at 22% in recent years. In other words, just a third of its sales results from food and fresh food.

Sure, some edible items fall in the sundries category at 22% of sales. That's where candy, snacks, and beverages come into play. However, hardlines, softlines, and other items make up the balance.

Let's not dismiss that "other" category. Ancillary offerings including gasoline, pharmacy, food court, optical, photofinishing, hearing aid, and travel added up to 18% of sales in fiscal 2012.

4. Bulk packaging is a movable feast.
Costco doesn't always get it right the first time in drumming up the ideal size of its bulk-size bargains. Sinegal told Tom last summer that bananas is one area where Costco had to adjust the portion. It originally offered bananas in five-pound packaging, but too many people were complaining that they couldn't eat all of them before the ripe fruits went bad. Costco went down to four pounds and then three pounds.  

The same thing happened with ground beef as Costco worked its way down to the size that satisfies shopper demands while providing the maximum savings that are available in bulk packaging of food items.

5. Rotisserie chickens are a $300-million-a-year business at Costco.
Costco spent a good part of Wednesday morning's conference call discussing its popular rotisserie chicken. Priced ambitiously at $4.99 a chicken, it's a popular add-on item for shoppers as a takeout item that can become that night's meal. Costco is selling more than 60 million rotisserie chickens a year, and it's sticking to that $4.99 price point despite the wild swings in poultry prices.

CFO Richard Galanti even called rotisserie chicken "the new hot dog" in the company's fiscal third-quarter earnings call three months ago, referring to how the $4.99 price point was winning it free press on late-night talk shows and morning business programs.

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Read/Post Comments (22) | Recommend This Article (93)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On October 10, 2013, at 9:35 AM, lm1b2 wrote:

    I became a member,and i liked it until my third or forth visit when on my way through checkout i found out they only took American Express credit cards,the only card i did not have,i did not renew my membership.

  • Report this Comment On October 10, 2013, at 12:12 PM, DCUDFlyer wrote:

    Love COST the brand...but the stock not so much. It tends to move in lockstep with SPY and pays a 1% dividend. Pretty tough to get excited about that.

    Similar to AMZN and JWN, love the brands and businesses but not excited about the stock.

  • Report this Comment On October 10, 2013, at 12:19 PM, snarfblat wrote:

    I belong to Costco and BJ's (an east coast chain). I like BJ's better because they take manufacturer coupons as well as providing their own. They also accept a variety of credit cards. Their membership prices are the same. I belong to both because the items they carry can be different.

  • Report this Comment On October 10, 2013, at 1:46 PM, verylargelarry wrote:

    DCUDFlyer - really? Bought COST in July and October of 2010. Since then, COST is up 123.5% and SPY is up 56.2%. I can live with that.

    lm1b2 - Your judgement of COST is based on what credit card it accepts? You must not have "liked" it very much...

  • Report this Comment On October 10, 2013, at 2:03 PM, verylargelarry wrote:

    DCUDFlyer - for that matter, bought AMZN in January and February of 2012. Since then, AMZN is up 73.9% and SPY is up 28.9%. While I have no position in JWN, I am concerned about the clarity of your focus.

  • Report this Comment On October 10, 2013, at 6:24 PM, retiredalj wrote:

    There's more to a company than just its stock price. I like that COST pays its employees a living wage and provides fringe benefits. That said, I've been a member for several years and a stockholder for about a year. Loved the one time dividend last year and the stock has gained >30%. They are also carrying more organic items, which captures a growing market. It's a long term holding for me.

  • Report this Comment On October 10, 2013, at 6:26 PM, retiredalj wrote:

    PS. The annual dividend from AmEx more than covers the annual fee.

  • Report this Comment On October 10, 2013, at 6:29 PM, RnRchoc wrote:

    they accept debit cards! Electronics come with an extra year warranty and you can return it within a few months if you do not like it. hard to beat. Good wine selection too! The employees bend over backwards to help you - at least at the store I go to.

  • Report this Comment On October 10, 2013, at 6:29 PM, HuckleBilly50 wrote:

    I am not a member of Costco because of the extreme, rude manner in which I was treated by their employees when I tried to apply for membership. They were arrogant and could care less if I became a member or not. I will never enter a Costco for any reason whatsoever.

  • Report this Comment On October 10, 2013, at 6:50 PM, Zankel wrote:

    I love COSTCO. What is there not to love? Further I bought the stock at $ 19.25 (Another reason to love Costco.

  • Report this Comment On October 10, 2013, at 6:53 PM, Ed151 wrote:

    Only accepts AMEX cards. Good get the Fidelity card and 2% of every purchase goes into your Fidelity account. No fees if you need to carry a balance its around 12%.

  • Report this Comment On October 10, 2013, at 8:06 PM, stemcells2011 wrote:

    HuckleBilly50...fool since March 2007.

    0 caps picks ever

    1 post (above)

    Non-amex users: don't you have a debit card? You don't even need to use a pin number anymore in some locations. Just press 'enter' and sign.

  • Report this Comment On October 11, 2013, at 4:55 AM, Vechiger wrote:

    In the interest of public health they could go back to smaller size coke in the combo and limit to one refill. Likewise I wouldn't want to know about the life and food of the chickens sold for $ 4.99.

  • Report this Comment On October 11, 2013, at 9:05 AM, sagitarius84 wrote:

    I found a nice stock analysis of Costco:

    http://www.dividendgrowthinvestor.com/2013/01/costco-dividen...

    The stock is a little overvalued, even Munger knows that when everyone realizes how great a company is, they bid up the price.

  • Report this Comment On October 11, 2013, at 9:10 AM, pondee619 wrote:

    Vechiger:

    They can keep the size, and re-fill, of their soft drink just as it is and let the consumer be concerned about his/her own health.

    Your unsupported slur about their chickens is beneath comment.

  • Report this Comment On October 11, 2013, at 9:38 AM, hitescape wrote:

    @Ed151, why the Fidelity Amex when you can get a Costco Amex Card? Better earn rate, and the annual fee also covers your Costco membership. And, if you get gas at Costco, then its a no-brainer.

    Also, Costco accepts good ol' cash. Yep, THE legal tender of these United States.

    I love the store, love the selection, and the prices. I loved the stock when i bought it in 2010, and still like it now.

    BJ's is alright, too. The difference is that BJ's sells cheap stuff for cheap. Costco sells good stuff for a reasonable price (a fixed 14% mark-up, I believe).

  • Report this Comment On October 11, 2013, at 10:27 AM, mikecart1 wrote:

    I used to go to Costco for their cheap tilapia, filet migneon steaks, and picked up a fresh box of pizza on my way out. I eventually became tired of eating these foods and canceled my membership. However, I may return one day because I only became tired because I ate these food items daily haha!

  • Report this Comment On October 18, 2013, at 3:44 PM, Gloria1250 wrote:

    I love Costco both as a consumer and a stock holder.

    The annual executive member kickback comes close to covering the membership fee for us. I like the quality of the products, their pricing, their return policy, and their happy employees.

    I bought the stock in May and July of 2009, have a current gain of 141.7%, plus I have received dividends that add up to nearly 23% of the original cost of the stock.

    We also use their AmEx card and get a nice annual kickback there as well.

  • Report this Comment On October 19, 2013, at 10:18 AM, RadioFreePG wrote:

    I don't know if my analytical methods are very scientific, but Costco employees seem to be the happiest of any retailer in our area. I think besides good pay and benefits, the management is outstanding as well. Costcos use of Data Processing is also leading-edge and that's one of the thing that helped Walmart grow. We are very grateful for the Costco in our community.

  • Report this Comment On October 19, 2013, at 10:28 PM, Netteligent09 wrote:

    Stay away from Best Buy with all the expensive items, stupid tricks and worst Return Policy.

  • Report this Comment On October 22, 2013, at 9:14 PM, monica3674 wrote:

    So sad they switched from Coke to Pepsi. I'm actually there a lot less now :(

  • Report this Comment On October 25, 2013, at 3:01 PM, minimumwage wrote:

    Costco seems to have a rabid fan base! lol. I've rarely seen this much defense in the comments section.

    That said, anyone who takes articles such as this without a grain of salt is fooling themselves. I don't buy the fool.com stock tip stuff, but COST is clearly one of their top picks and they are trying to drum up business.

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