Does Costco Lose Money On The $4.99 Rotisserie Chicken?

There are a few constants in life: death, taxes, and the $4.99 Costco rotisserie chicken. In 2023 alone, the members-only wholesale club sold 137 million of the bagged birds. Fans of the product have noted its delicious taste, juicy texture, and irresistibly low price point. But with all of its appeal, does Costco actually make money on the popular birds, especially considering how cheap they are? The answer is no, Costco does not make money on the rotisserie chickens. In fact, in 2015, Richard A. Galanti, the company's former CFO, noted that Costco was more than eager to give up "$30 million, $40 million a year on gross margin" to keep the product at its current price point (via CNN). However, there's no public documentation on the exact financial losses taken on by keeping the chicken cheap. 

All the same, it does seem clear that Costco's rotisserie chickens are sold below market value and their price certainly hasn't kept up with inflation. So, if those spinning birds aren't exactly raking in a big profit for the company, why does Costco insist on selling the birds at such a loss? This is because the retailer's rotisserie chickens are what is known as a "loss leader," which actually brings in a big profit for the wholesale club, just not in a traditional way.

It may seem counterintuitive to sell an item at a loss, as the goal of any business is to turn a profit. However, sometimes selling a product for less than it costs to make can actually help drum up business. Essentially, a loss leader is a method of marketing that involves selling a good or service far below what it's actually worth. Doing so encourages customers to engage with the business, potentially leading them to purchase other more expensive (and profitable) products. This is likely why Costco sells their rotisserie chicken for such a low price. The cheap roasted birds bring in customers, who are then more likely to load up their massive carts with more items. Plus, Costco works on a membership model, so shoppers pay just to get in the front door. 

This makes the rotisserie chicken's low price not only possible but apparently sustainable over multiple decades. The same likely wouldn't be true for smaller businesses, though. The loss leader strategy is pretty risky, if not controversial, as it favors larger businesses that can take on financial losses. This can shut out budding businesses that operate on a smaller profit margin. Even so, Costco's strategic use of loss leaders is central to its business model, extending to its beloved food court. Costco might make its own hot dogs to cut costs, but it'd be surprising if the $1.50 price that's stayed the same since the 1980s is actually profitable. 

Now, a cheap chicken is all well and good, but there's no doubt that the key to the Costco rotisserie chicken's popularity extends beyond its low price point. For decades, Costco customers have praised the product for its juiciness and rich flavor. But what's the secret to making the beloved spinning chickens so tasty? Turns out, there are a few. For one, prior to cooking, each chicken is injected with a saltwater solution, which boosts both the moisture and flavor of the meat. Of course, this isn't exactly a new trick, as "plumping" poultry with a saline solution has been a pretty common (but tasty) practice in the industry for decades. 

Then, there is the cooking method itself, which involves placing whole chickens on a rotating spit. As the chickens rotate, the juices drip onto the lower spit, essentially basting the birds as they roast. The rotisserie style of cooking works over a longer period of time and at a lower temperature than many other methods of cooking. Together, all of this results in a more succulent, flavorful bird. Additionally, Costco's rotisserie chickens are pulled from the shelf after only two hours, so each bird is guaranteed fresh. Anyone who has tried one can attest to its quality, excellent enough that customers even sometimes excitedly dig into the chicken before heading home. Of course, you can always pick up some items from Costco's food court to tide you over instead.