The $5 Costco rotisserie chicken stands as a monument against inflation, and a loss leader to keep members coming.
Another company story is the quality of leadership, particularly Richard Galanti the CFO, and often the sole company executive on quarterly earnings calls. He deserves a biography and a Wikipedia page1Former CEO and Cofounder Jim Sinegal deserves a biography even more. I wrote previously about Costco’s member obsession. Their model runs so that the membership fee operates as the only earnings piece left after costs. $5-10/month per member for company coffers. This ethos can still be applied to other domains.
Market share and keeping members coming matters over all other initiatives. Galanti in this month’s earnings call was on fire: “Selling a rotisserie chicken, our $4.99 price, which we maintain, is an investment in low prices to drive membership, to drive the sales in a big way.”
They know the pieces that fit together that make the member experience. “We’re going to do things that drive market share.” With gas, “It’s given us an additional competitive advantage of getting people in the door.”
Where some companies run tests and obsess over pricing and real-time data, Costco is different. Galatani goes on: “We don’t analyze, frankly, the price elasticity on a historical basis other than we know what works in the past and we keep doing it more. It’s pretty straightforward. But we’re not doing A/B tests….We’re pretty singularly focused on if we lower the price, we’ll do more sales.”
The machine is well-oiled. “Membership growth has remained strong. We ended the second quarter with 68.1 million paid household members and 123 million cardholders, both up more than 7% versus a year earlier.”
Galanti is renowned for saying “I don’t know”, a virtue in the land of fake certainty, and for being focused on member value. The rest will flow. This is the figurative 72-point font of the internal memos and the revealed culture of the firm. Inflation and its direction are always on the discussion board each quarter, and Costco has a unique barometer on prices, since they’re squeezing costs out of a very limited number of SKUs (3,700+ vs. 100,000+ at Walmart). “We can’t predict what’s going to happen, at least the trends yesterday were that we’re starting to see some improvement in inflation.”
Whether the next round of growth with come from opening more stores, winning more hearts, new niches like Medicare insurance marketing2one of my ideas, real estate development above new stores, or something else, Costco and Galanti are bright spots worth experiencing, studying, and applying to areas like healthcare and so much more.