On the desk today · Costco Wholesale Corporation
The hot dog has been $1.50 since 1985. The markup cap has never changed. The members keep paying.
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The Man Who Refused
to Raise the Price
Charlie Munger sat on the Costco board for 26 years — from 1997 until his death in 2023. He called it "almost certainly the best company in America." When people asked him why, he didn't talk about revenue or square footage or global expansion. He talked about the rules. The rules that Jim Sinegal — Costco's co-founder — set in 1983 and never broke. Never mark up any item more than 14%. Cap the number of products at roughly 4,000. And never — under any circumstances — raise the price of the hot dog combo. The hot dog has been $1.50 since 1985. When Craig Jelinek, Sinegal's successor, once floated the idea of raising it, Sinegal's response became legend: "If you raise the [expletive] price of the hot dog, I'll kill you."
I went to Costco last Saturday. Bought a rotisserie chicken for $4.99, a case of sparkling water, and a 48-pack of batteries. The parking lot was full at 10 a.m. The checkout line wrapped past the book table. I paid for everything, walked past the food court, and saw the sign: hot dog and a soda, $1.50. Forty years. Same price.
Most people think Costco is a retailer. It's not — at least not in the way a traditional store works. Costco makes almost nothing on the merchandise. The markup cap means the retail operation barely breaks even. The real revenue is the membership fee. You pay $65 a year — or $130 for Executive — just to walk through the door. Costco keeps that fee. The merchandise is the reason you renew.
Sinegal co-founded Costco in 1983 in Seattle with Jeff Brotman. He had learned the warehouse model from Sol Price, who founded Price Club in San Diego in 1976. The two companies merged in 1993. Sinegal ran the combined operation until 2012. His rules — the markup cap, the limited selection, the $1.50 hot dog — became the operating system. Nobody who followed him changed them.
The fiscal year ended August 2025. Net sales hit $269.9 billion — up 8.1%. Net income was $8.1 billion. Membership fee income reached $5.3 billion — up 10.3% — from 81 million paid members. The US and Canada renewal rate was 92.3%. And the company operated 914 warehouses in 14 countries. But the number I keep coming back to is $5.3 billion. That's $5.3 billion collected before a single item is sold. The membership fee is the business. Everything else is the reason you pay it.
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That 92.3% renewal rate is the number that makes the business work. It means that out of every 100 members, 92 come back the next year. They pay their $65 or $130 before they even walk through the door. The membership is a commitment — a psychological contract. And the store's refusal to gouge on price is what keeps it intact. The $1.50 hot dog isn't a loss leader. It's a promise. A signal that says: you will never overpay here.
The pricing power is in the fee, not the merchandise. In September 2024, Costco raised membership fees for the first time in seven years. Gold Star went from $60 to $65. Executive went from $120 to $130. The press covered it as a big deal. Members paid anyway. The renewal rate held above 92%. Costco waited seven years between the prior hike (2017) and this one. Patience is the strategy. Members barely noticed.
I think about the 4,000 SKUs. A typical supermarket carries 30,000 to 50,000 items. Costco carries about 4,000. That sounds like a disadvantage. It's not. Fewer items mean higher volume per item. Higher volume means more leverage with suppliers. More leverage means lower prices. Lower prices justify the membership fee. The whole system runs on saying no — to brands, to products, to the temptation to offer more. Sinegal understood that the power of the store is in what it refuses to sell.
The flywheel runs through Executive memberships. Of Costco's 81 million paid members, 38.7 million are on the Executive tier at $130 a year. Executive members earn 2% cash back on purchases. That rebate incentivizes them to spend more — and they do. Executive members account for roughly 73% of all sales. Each year, more Gold Star members upgrade. The average spend rises. The fee income compounds.
WHY THIS WORKS
Membership is the product. $5.3 billion collected before a single item sells. The fee is nearly pure profit. The merchandise is the reason you renew — not the source of the margin.
92% renewal is a loyalty wall. Members don't leave because the store never gives them a reason to. Low prices, limited markup, and the $1.50 hot dog are a social contract — and 92 out of 100 honor it.
Fewer items, more power. Four thousand SKUs create enormous volume per product. That volume gives Costco leverage no competitor can match — and prices no competitor can beat.
Executive upgrades compound the base. 38.7 million members pay $130 and spend more to earn the 2% rebate. The higher tier generates more fees and more spending — a flywheel inside the flywheel.
What most people miss: Costco's private label — Kirkland Signature — generates north of $80 billion in annual revenue. That's more than Coca-Cola. More than Nike. And almost no one outside the industry knows Kirkland is a house brand. It sits on the same shelf as the national names, priced lower, and outsells them. The hot dog gets the attention. Kirkland does the work.
