Costco Pricing Spine-ometer: 5 of 5 Vertebrae

Shipping and commodity prices have slipped. Prices at Costco’s 839 stores haven’t. 

Deflection comments from Costco: (1) Costco locked in prices it pays to suppliers months ago so, presumably, they can’t pass on savings to customers yet; (2) Costco is facing rising labor costs. 

Evidence supporting the validity of deflection comments, respectively: (1) Example of cost reduction: Container freight spot-rates across the Pacific have fallen nearly tenfold from ~$21,000 in September 2021 to ~$2,300 in September 2022; (2) Example of cost increase: Average hourly wages at Costco exceed $25, and 90% of Costco employees are hourly-wage earners.

Other facts to reduce consumer pressure to raise prices: hot dogs and rotisserie chicken are still $1.50 and $4.99, respectively. 

Hard facts that support keeping prices high for now: Inflation isn’t over. Customer retention rates at Costco exceed 90%. Revenue rose if the quarter ending August 2022 over same period last year. 

Best practice when facing costs reductions is to hold prices high until competition forces a move. Right now, Costco isn’t facing competitive pressure to lower prices. Partly due to the nature of the membership-buyer business model (two-part tariff in pricing lingo), and partly due to the similar challenges faced by Costco’s competitors. (Sam’s Club and Walmart, Kroger, Albertsons, etc.)

The management teams at Costco are currently following pricing best practices.

Costco Pricing Spine: 5 out of 5 vertebrae on this decision.

COST (Costco Wholesale Corp.) fluctuated only slightly in the day following the news around 482. 2022 revenue of $227 billion with a 2.6% margin and P/E ratio near 37.

Call to action: Contact Wiglaf Pricing for your, private, pricing spine-ometer and discover where your pricing practices are strong and where they can be improved.

Williams-Alvarez, Jennifer (2022, October 7). Costco Waits on Price Cuts Even as Freight Rates Slide. Wall Street Journal, B3.