Ever driven to Costco just to get a mouthwatering rotisserie chicken? At just $4.99, it’d be stupid not to – even when you factor in the cost of gas. But when you next chow down on one of these bargain birds, consider this: there’s a big price being paid. And you eventually may be the one having to cover that cost.
Famously cheap chicken
You won’t be confronted with that price at Costco, of course. Rotisserie chickens have remained at a steady $4.99 there since 2009.
And plenty of the birds are flying – although not literally! – out of the doors. We know this because a Costco boss spilled the beans.
60 million chickens a year
In a 2018 interview with NPR, Costco head of external affairs Jessica Kolterman revealed something astonishing. At that time, the big-box store was selling about 60 million chickens each year in the U.S.
alone. That’s a whole lot of birds! And it means either the retail giant is missing a trick when it comes to profits – or it’s gone to extreme lengths to secure this price.
But despite growing concern about the brand’s birds, they have become somewhat of a cult item. They even have their own Facebook page with over 18,000 followers!
Not everyone is so smitten, though, and that could be because they know how Costco secures such a plentiful flow of chickens on demand.
Keeping the price low
It’s weird, too, that Costco is adamant about keeping the cost of its chicken down. Many members wouldn’t quibble about paying an extra dollar or two on top of that $4.99.
We bet sales wouldn’t be much affected, either. So, could the whole thing be an error? And is it Costco that’s having to pay the price?
As one of the largest retailers in the world, Costco has its price points all figured out. That means the low cost of the chicken definitely isn’t an error!
It’s been carefully analyzed, and $4.99 is the amount the company is sticking at.
Bringing in regulars
Even more puzzlingly, as competitors have continued to gradually increase their prices, Costco hasn’t budged. And it’s this decision that hints at a darker truth.
If Costco isn’t having to eat the cost of the chickens, who is?
Obviously, Costco isn’t making all its profit through the chickens alone. How can it when the birds are so cheap?
Maybe there’s something else that Costco is buying low and selling high to make up the shortfall. Maybe it’s the producers of that item who are paying the big price.
Well, you’d be surprised! According to Costco CFO and executive vice president Richard Galanti, there’s no secret weapon in the company’s arsenal.
In fact, the store is losing a lot of money by selling the chickens. And we mean a lot of money.
Selling at a loss
It turns out that the rotisserie chickens have been setting Costco back somewhere between $30 and $40 million each year. And even after divulging this staggering sum, Galanti remained blasé about the company's decision to stick with its $4.99 price, saying, “That’s us, that’s what we do for a living.”
But what exactly is it that they’re doing?
According to Galanti, the firm’s finance supremo, Costco has consistently been willing to “eat” close to $40 million in revenue. This is supposed to reflect the business’ commitment to good value for its customers.
Sounds kind and caring, right? But there’s a sinister truth behind those cheap birds.
In 2019 the non-profit Food & Water Watch left a scathing review of the retailer’s controversial approach. In an article on its website, the group claimed, “Costco has been plotting to...
wreak havoc on Midwest agriculture so they can keep their hot ticket item cheap.” Pretty bold statement!
Food & Water Watch essentially suggested that Costco is exploiting someone somewhere down the line.
And it probably won’t surprise you to learn that remaining firm on that $4.99 price point could actually be benefiting the company.
Big risk, big reward
Let us explain! The scrumptious rotisserie chickens likely work as a lure for customers – or a ‘loss leader.’ By keeping the rock-bottom price artificially low, the highly popular chicken is guaranteed to be in hot demand.
And luckily for Costco, that risky move seems to be paying off. According to figures in a 2014 edition of The Seattle Times, sales come in at close to one bird each for every one of the 78.7 million Costco members.
And by setting itself apart from its competitors by pricing low, Costco guarantees a higher footfall in its stores. So, despite losing out on a few dollars per chicken, the company makes up for it with customers’ other purchases once they’ve stepped through the doors.
Makes sense, right? How many times have you gone into a supermarket with just one thing in mind, only to be enticed into buying more than you needed?
It’s the same deal with the chickens. By placing the coveted birds at the very back, Costco hopes that consumers will be tempted by other products along the way.
But this merely scratches the surface of the company’s sneaky tactics.
Injecting the birds
Take the taste of Costco’s chicken, for example. It’s not bland, meaning the company must have some special flavoring secret at its disposal.
But as this costs money Costco doesn’t have, what gives? Well, the answer lies with an injection that takes place before the birds have even made it to store.
Each bird is pumped with 460 milligrams of salty liquid. That’s close to a third of your recommended daily intake of sodium, according to the American Heart Association.
Yup, if you’re partial to eating a chicken all by yourself, you may find yourself over the salt limit. And that makes us wonder what else Costco is willing to disregard to turn a profit.
The real secret? Costco’s had to make a controversial business move to sell its popular chickens.
You see, according to the USDA, the number of whole birds sold has fallen from 50 percent in the 1980s to just 15 percent today. And so to get the amount of chicken it needs, the big-box store has had to take things into its own hands.
Back to the drawing board
Over the last 50 years, birds have been bred larger and larger to supply the growing appetite for portioned cuts of meat. Unfortunately for Costco, though, these chickens aren’t a good fit for the rotisserie.
And with the global supply chain no longer an option, the wholesaler had to return to the drawing board. Its approach has caused a real furor, too.
Basically, Costco needed to think fast and think big. And its solution to not compromising on price was this: an entirely new company, a total overhaul of its business model, and a staggering $450 million investment.
Not dramatic at all!
Farmers fight back
In order to maintain an ample stock of chickens that were all the right size, Costco decided to monopolize the chicken production process – right down to the hatching of the eggs.
The monumental business venture came to life in Fremont, Nebraska, and it didn’t materialize without backlash from the local community, who have proudly farmed the area for generations.
Ultimately, this business was set to provide a staggering 40 percent of Costco’s annual chicken supply. That’s about 100 million chickens every year!
And the threat of such an imposing plant – all 400,000 square feet of it – was certainly felt by the people living nearby.
The company formed to deal with Costco’s mammoth move into farming, Lincoln Premium Poultry, had its potential sites positioned on the border of Iowa and Nebraska. But that’s a place already brimming with factory farms.
As of August 2018, in excess of 10,000 of these facilities were already functioning in the area. No wonder the locals fought back.
Ruth June had relocated to Nebraska in 1962 with her late husband Bob, and she had always loved the peace in her neck of the woods. In a 2018 interview with Nebraska Public Media, she said, “This is a nice, quiet neighborhood.
Nice people. Everybody gets along.” Until Costco got involved, that is. She predicted, “Now, we’re going to be shut up in our houses because we can’t stand the smell outside?” Fair point.
And Kolterman didn’t do much to dispel Ruth’s concerns about lingering odors, “I’m not going to sit here and tell you you’re never going to have a smell in the course of this operation. It’s a farm...
That’s just the nature of agriculture,” the Costco boss replied. But a bad stench in the air isn’t the worst issue.
There’s the environmental impact to consider, too. Randy Rupper was part of the local group Nebraska Communities United, and he was concerned about the grim reality of all that manure.
In 2018 he claimed that “millions of pounds” of the stuff would cover the surrounding fields. Unfortunately, manure means chemicals, which equals a whole lot of nitrogen and phosphorus making its way into local waterways. And that’s very bad news.
It’s all known as farm runoff, and it’s usually caused by rainfall or irrigation. On farms, though, there are potassium or nitrogen from fertilizers, pesticides, and even certain metals.
And you may have already guessed what can happen when these chemicals enter our water sources.
Yep, you guessed it – pollution. And it’s one reason why Food & Water Watch was particularly opposed to Costco’s mammoth new plant.
According to the non-profit, the area was already crippled by what it described as “severe pollution” from intense industrial agriculture in the Midwest. Apparently, over 1,000 miles of streams and rivers had already been harmed as a direct result of factory farming. But it doesn’t end there.
Damaging local habitats
The adverse effects of farm runoff have also been seen at several state park beaches. Food & Water Watch found that in 2017, the advice at 37 bathing spots was 'Swimming Not Recommended.' And according to the National Water Quality Inventory, this form of pollution was one of the leading causes of contaminated water in 2000.
Worryingly, this is still true more than 20 years later.
Dangerous drinking water
But it’s simple, right? Just don’t swim in those waters, and all will be okay.
Not quite. Iowa – which is right next to Costco’s sprawling new poultry facility – has already felt the effects of factory farming on its drinking water supply.
The Des Moines Water Works is Iowa’s largest facility for treating drinking water, and it’s revealed the disturbing effects of industrial-scale farming on the surrounding community. In 2015 nitrate pollution surpassed federal limits in 11 of the state’s water supplies.
And in certain conditions, that can be extremely dangerous. It’s no wonder that Nebraskans feared the effects of mass farming in their own region.
Due to the volatile way that nitrates can react once they’ve been ingested, this type of water pollution has been linked with certain birth defects and certain types of cancer.
But for the citizens of Fremont, that wasn’t the only bone they had to pick with Costco.
Wooing the locals
Costco’s choice of location for its state-of-the-art poultry farm wasn’t made by sheer chance. The company knew that Nebraska is one of the U.S.’ biggest farming states.
And for its new business to prosper, the huge chain would have to get the local farmers on side.
Seeing as one in four jobs in Nebraska are agricultural, this shouldn’t have been too hard a task. But while Costco was offering 15-year contracts to participating farmers, there were still widespread concerns that they would be exploited by the mega-firm.
Basically, these deals could trap folks in an unfavorable position.
A young farmer in the area, Marshall Lutjens, raised a concern that was shared by many. In 2018 he told NPR, “My biggest thing is if something ever happened to the company, who's going to fill the barns?
Because you're putting a lot of money down for barns.” In other words, should any unforeseen circumstances crop up, there would be little to no compensation offered to the farmers. And with the livelihoods of so many farmers hanging in the balance, it’s clear that Costco’s low prices really do come at a cost.
These honest, hard-working folks could be left high and dry – and it would make barely a dent in Costco’s profit margins. But there’s a more obvious threat posed by the intruding company.
And it’s all to do with Nebraska’s time-honored farming system of family ownership.
Here’s the deal. After the Costco project was launched, a North Carolina investor applied for ownership of a staggering 132 chicken houses.
A generous investment, right? Seems great. The only issue is that North Carolina is more than a thousand miles away from Nebraska. And locals are concerned about these absentee owners for good reason.
Being pushed out
Andrew Tonnies lives in Dodge County, and he was worried that people investing from out of state would be less likely to have the best interests of the community at heart. In 2019 he told the website Food and Power, “These people coming in… are they just interested in the economics of extraction?” And he has a point.
Before the plant was even being built, local farmers were reportedly already being pushed out of their right to farm ownership by wealthy folks with their eyes on the prize.
The true cost
So it seems the true cost of Costco’s rotisserie chickens is a far cry from their bargain price tag. Only time will tell whether the farmers involved in the project will be exploited, or whether the local landscape will be drastically impacted by pollution.
For now, though, let’s take Lincoln Premium Poultry at its word and hope it will stick to its seemingly sound code of ethics.