Costco's Inflation-Proof $4.99 Rotisserie Chicken

Introduction

• Americans consume around 7.5 billion chickens annually, averaging 23 birds per person.
• Poultry prices increased 18.6% from June 2021 to June 2022, surpassing overall food inflation.
• Despite inflation, Costco maintains its rotisserie chicken price at $4.99, a strategy in place for over 11 years.
• This price is set as a loss leader to attract customers.

Costco's Strategy

• Costco uses rotisserie chickens to draw customers who then purchase other items.
• The chicken is popular, with a dedicated Facebook page of 19,000 followers.

Vertical Integration

• In 2019, Costco vertically integrated its chicken supply chain:
  • Established its own feed mill, hatchery, and slaughter plant in Nebraska.
  • Contracts with local farmers to raise over 100 million birds annually.
• This move allows Costco to reduce costs and maintain low prices, saving potentially 35 cents per bird.

Concerns and Criticisms

• Critics argue industrial farming worsens worker conditions, pollution, and rural economies.
• Costco claims improvements such as more humane slaughter methods and fairer farmer contracts.
• However, Costco still shares many practices with major industry players.

Environmental and Social Impact

Local Impact

• Near chicken farms, the environment can suffer:
  • Example: Greg Lanc experiences severe odor, noise, and pollution from nearby farms.
  • Complaints to local government have seen little action.

Farmer Impact

• Farmers face substantial risks and financial burdens:
  • Must secure significant loans for farm setup.
  • Paid through competitive systems that can financially disadvantage some farmers.
• Costco claims to have eliminated some of these competitive systems.

Worker Conditions

• Poultry slaughterhouse jobs are dangerous:
  • Fast-paced, risky environments with high injury rates.
  • Costco uses methods that may reduce injury risk.

Animal Welfare

• Investigations reveal poor conditions in chicken farms, such as overcrowding and health issues.
• Costco plans minor improvements but has not committed to significant changes.

Legal and Economic Outlook

• Lawsuits allege animal neglect at Costco farms.
• Political outlook in Nebraska suggests limited regulatory changes.
• Potential federal regulatory updates could slightly empower contract farmers.

Conclusion

• Despite controversies, the $4.99 chicken remains popular due to economic conditions.
• Consumer demand for budget-friendly options continues amidst inflation concerns.