The market's surprised that Costco (COST 0.20%) 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 (WMT +0.42%) 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.
