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Costco has a $275 million plan to make sure its rotisserie chicken never costs more than $5 (COST)
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Costco is committed to keeping its rotisserie chicken priced at just $5.
The company is in the process of building a $275 million chicken-processing factory in Nebraska, set to open next year.
The factory is intended to cut costs, helping Costco keep the rotisserie chicken priced at $5 in years to come.
Costco is committed to keeping its rotisserie chicken priced at just $5 — no matter what it takes.
"We were willing to eat, if you will, $30 to $40 million a year in gross margin by keeping it at $4.99," Richard Galanti, Costco's chief financial officer, said in a 2015 earnings call, according to The Seattle Times. "That's what we do for a living."
However, Costco is in the process of opening a new factory that will help the company avoid losing money on chicken. The company plans to open a $275 million poultry-processing center in Fremont, Nebraska, in September 2019, according to executives.
Costco broke ground on the factory last year, The Seattle Times reports. According to Galanti, the processing center will aim to produce about 100 million chickens a year, roughly a quarter of Costco's US demand.
Once the plant is up and running, it is expected to process roughly two million chicken a week, according to Craig Wilson, vice president and general merchandising manager. Wilson, speaking at a Food Safety Summit earlier this year, said that the project — which includes a hatchery and feed mill — will employ roughly 800 people and occupy a 414-acre site, according to industry publication Food Processing.
The chicken factory will follow in the footsteps of a strategy Costco has used to maintain low hot dog prices. Costco hasn't budged on its $1.50 hot-dog-and-soda deal since the mid-1980s, in part because the company produces the hot dogs at a Costco-owned plant in Tracy, California.
Keeping these fixed prices low is a key part of Costco's strategy to win over customers.
David Fuller, the assistant vice president of publishing, explained in the 2009 edition of company magazine Costco Connection that Costco wanted to prove that "a business can operate on a fair markup and still pay all of its bills."
He continued: "Holding a price that steady for that long sends a clear message about what is possible when you decide to operate your business model on a 'cost-plus' basis instead of a 'what the market will bear' basis."
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