How Costco Handles Inflation

As inflation continues to hover near its highest level in 40 years, businesses and consumers grapple with the pain of rising prices.

A Costco executive addressed the issue on Thursday, providing insight into how the retailer is handling rising prices while delivering value to customers.

A Costco Wholesale retail club in Austin, Texas on December 12, 2016. (Reuters/Mohammad Khursheed/Reuters Pictures)

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COST COSTCO WHOLESALE CORP. 469.76 +4.77 +1.03%

Bob Nelson, Costco’s senior vice president of finance and investor relations, noted on the retailer’s third quarter 2022 earnings call that inflation “continues,” saying “the pressures from the rising commodity prices, rising wages, rising transportation and supply chain disruptions” are “all still at stake.”

Nelson said that for the first quarter of its fiscal year, Costco estimated price inflation to be around 4.5% to 5%, and in the 6% range for the second quarter. He said that “for the third quarter and talking to our traders, estimated price inflation was around 7%”.

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Nelson was asked how the company balances passing on some price increases — particularly with prices for some items rising far more than the estimates he provided — while delivering value to customers.

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Cars line up for gas at a Costco gas station in Vallejo, California. (Thearon W. Henderson/Getty Images/Getty Images)

“We always want to be the best value on the market,” Nelson said. “And to the extent that we continue to show that, I think it’s easier for us to pass on higher prices, or higher transportation costs, or raw material costs, assuming we show that. market value.”

Nelson gave an example where the company recently reluctantly raised the price of its one-dollar muffins and croissants because the cost of the various raw materials that go into them had doubled, tripled and even quadrupled.

One area where Costco isn’t passing on price increases yet is in its membership fees — for now.

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The company typically raises its dues every five or six years, and next month will be the five-year mark from the last increase in 2017. In the previous quarterly earnings call, another Costco executive pointed out that June would be the anniversary, sparking speculation that customers might expect an increase around this time.

But Nelson said on Thursday’s call that “given the current macroeconomic environment, historically high inflation and the burden it places on our members and all consumers in general, we believe that increasing our membership fees today before our usual timing is not the right time”. .”

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Shoppers search for items at a Costco Wholesale store on August 4, 2020 in Colchester, Vermont. (Robert Nickelsberg/Getty Images/Getty Images)

Nelson also confirmed that there are currently no plans to increase the price of the company’s popular $1.50 hot dog and soda combination.

Costco raised prices in some areas of food and sundries, he said, adding that “the balance was slightly larger in non-food items than in food,” but the company was focusing more on articles than on categories.

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“We saw a slight drop in fresh food inflation in Q3 compared to Q2 a year ago as we started to drive meat prices up,” Nelson said. “We believe our strong sales increases and relatively consistent margins show that we have continued to strike the right balance in passing on rising costs.”

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