Strategy Why Costco food courts have charged $1.50 for hot dogs since 1985, according to employees

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Costco food court options don't change much. The price of the hot-dog-and-soda combo meal hasn't even changed since 1985 — and there's a reason for that.

Costco Food 4 play

Costco Food 4

(Hollis Johnson)
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  • Costco's food court is famous for its tasty hot dogs.
  • You'll be out $1.50 if you order the Costco menu staple with a soda.
  • The price hasn't changed since 1985, and there's a reason for that.

Costco food courts have a famous — and delicious — north star.

That'd be the hot-dog-and-soda combo, which has cost $1.50 since 1985. While Costco menu items vary across the US and around the globe, the hot-dog meal is one major constant.

And the staple isn't just static — it's popular. The Daily Meal reports that Costco sells 100 million hot dogs a year.

Employees dig it too. One Costco worker based in San Diego told Business Insider described the combo as a "classic."

Business Insider spoke with 36 Costco employees, four of whom said the combo was their go-to food-court order. Two others said it was the best deal in the whole store.

Business Insider's Hollis Johnson wrote that the hot dog was "easily one of the best hot dogs we've tried, at least in terms of fast, cheap food."

"Our expectations were low," Johnson said, "so the quality is all the more surprising."

So what's Costco's reasoning for keeping its hot dogs the same price since 1985?

To understand, it helps to know a bit of the history behind Costco's hot-dog meal — and the retail chain's food court in general.

The Costco food court that fans know and love can trace its lineage back to 1984, when the chain decided to stick "a single hot dog cart in front of a San Diego warehouse," according to David Wight's article in the March 2009 edition of the company magazine, Costco Connection. An employee named Jay de Geus was tasked with hawking the Hebrew National hot dogs.

From there, Costco launched Cafe 150, named for the price of most of its menu items: $1.50. In 1993, Costco merged with Price Club and inherited that chain's pizza kitchen too.

In 2008, Costco switched its traditional kosher dogs for Kirkland hot dogs. Wight cited the chain's inability to square the "availability of kosher raw materials and kosher production-plant capacity" with demand for hot dogs.

While the food changed, the price has remained the same

So what's Costco getting out of its $1.50 hot dog? Employees have some theories.

An anonymous Costco employee told PopSugar that Costco charged $1.50 for a hot dog and soda "just so your last experience before leaving is one of a pleasant cashier treating you well and giving you a good deal."

On Quora, a former competitive buyer at Costco said the food courts were actually "the main contributor to the dividends its shareholders get."

"Do not think for one minute that Costco does not make a huge margin on food-court products," Lenin Lobaton wrote. "That is where the profit of Costco comes from. In short, the food court is a gold mine for Costco."

In response to another question on Quora, Lobaton wrote that "the $1.50 hot dog and soda, pizza, and churros are all bottom-line contributors."

Other Costco employees say the hot-dog deal is bait for hungry shoppers.

"We do not make money off of our food," a food-court employee named Josh Smith wrote on Quora. "The $1.50 hot-dog deal is called a 'loss leader,' which means that it is used to draw in buyers for other higher-priced items like the chicken bake, brisket sandwich, and our new item, chili."

Smith added: "The whole thing is mainly a 'member service,' which is just to keep them happy."

What's the real answer?

In the 2009 edition of Costco Connection, David Fuller, the assistant vice president of publishing, settled the debate, writing that Costco wanted to prove that "a business can operate on a fair markup and still pay all of its bills."

"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," Fuller wrote.

Are you a Costco employee with a story to share? Email acain@businessinsider.com.