When asked by an analyst about Costco’s “philosophy” on its $4.99 rotisserie chicken amid potential bird shortages, CFO Richard Galanti referred to past instances of keeping prices steady even at the cost of profits.
Perhaps inspired by Costco Wholesale’s recent decision to buy olive oil from the land of Socrates, Barclays analyst Meredith Adler asked on Thursday what may have been the most profound question in the long history of earnings calls.
“What is your philosophy about chickens?” Adler asked during a call that followed Wednesday’s release of Costco’s earnings.
She was talking, specifically, about Costco’s wildly popular $4.99 rotisserie chicken — and whether it will start charging more if the wholesale price of chicken soars amid a massive slaughter of U.S. birds due to the widespread epidemic of avian flu.
Turns out Costco does have a philosophy that would have been familiar to the ancient Greeks, who were also master traders: Keep ‘em cheap.
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“We’ll have to see,” chief financial officer Richard Galanti first said in answer to Adler’s question. But he then proceeded to describe the Issaquah company’s worldview, delving deep into its identity as an inveterate discounter of rotisserie chicken.
“I can only tell you what history has shown us: When others were raising their chicken prices from $4.99 to $5.99, we were willing to eat, if you will, $30 to $40 million a year in gross margin by keeping it at $4.99,” Galanti said. “That’s what we do for a living.”
And it’s what keeps people coming into the warehouse, where they can be tempted by that 72-inch TV. Costco sold 76 million chickens in fiscal year 2014 — nearly one for every one of its 78.7 million cardholders.
So far, the chicken problem remains theoretical. The price of chicken has barely budged despite the fact that some 40 million chickens and turkeys have been euthanized or succumbed to avian flu, according to the Associated Press.
The U.S. Department of Agriculture says that a whole bird in April cost about $1.05 per pound, up from 97 cents on average during the first quarter, but still 4.8 percent cheaper than a year earlier.