How Costco Manages Inflation

As inflation continues to linger Near 40-year highscompanies and consumers are battling the pain of rising prices.

A Costco executive addressed the issue on Thursday, providing insight into how retailers can handle rising prices while still delivering value to customers.

Costco

Costco Wholesale Retail Club in Austin, Texas on December 12, 2016. (Reuters/Mohammad Khursheed/Reuters Photo)

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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 “from higher commodity prices, higher wages, higher traffic and supply chain disruptions” “still in play”.

In the first quarter of its fiscal year, Costco estimated price inflation at around 4.5% to 5%, and in the 6% range in the second quarter, Nielsen said. “For the third quarter and talking to our merchants, price inflation is estimated to be in the range of around 7 percent,” he said.

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Nielsen was asked how the company is balancing some price increases — particularly on some items that are much higher than the estimates he provided — while still delivering value to customers.

Costco Gas

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

“We always want to be the most valuable product on the market,” Nielsen said. “If we continue to prove that, I think it’s easier for us to pass on higher pricing, higher freight or raw material costs, assuming we demonstrate that value in the market.”

Nielsen cites an example of the company’s recent reluctance to raise the price of muffins and croissants by a dollar because the cost of the various raw materials that go into them has doubled, tripled or even quadrupled.

One area where Costco hasn’t passed on price increases is its membership fees — for now.

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The company typically raises membership fees every five or six years, and next month will mark the five-year mark since the last hike in 2017. On the last quarterly earnings call, another Costco executive noted that June will be the anniversary, spark speculation Customers may expect an increase at this time.

But Nielsen said on Thursday’s conference call, “Given the current macro environment, historically high inflation and the burden it places on our members and all consumers, we don’t think it’s right to increase our membership fees early today. the timing…”

Costco

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

Nielsen also confirmed that there are currently no plans to increase the price of the company’s famous $1.50 hot dog and soda combo.

Costco has raised prices in some areas of food and groceries, he said, adding that “non-food items have a slightly higher balance than food items,” but the company is more focused on commodities than categories.

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“We did see fresh food inflation a little lower in the third quarter than in the second quarter a year ago as we started to cycle through high meat prices,” Nielsen said. “We believe our solid sales growth and relatively stable margins suggest we continue to strike the right balance in passing on higher costs.”