A mammoth quarter-pound hot dog and a 20-oz. fountain soda for a grand total of $1.50? It’s hard to beat a bargain like that, unless you’re preparing meals at home. You won’t find this deal at McDonald's, Taco Bell, or Nathan’s Famous, or any place you’d normally call a “restaurant.”
Where will you find it? Just past the checkout area at Costco.
The menu at Costco’s no-frills dining area—there’s little more than a place to order, a table filled with condiments, straws, and napkins, and a few picnic tables lined up near vending machines—also includes solid values such as giant pizza slices for $1.99 (same price no matter if it’s cheese, pepperoni, or combo) and hot turkey sandwiches and chicken Caesar salads for $3.99 apiece. For dessert, three scoops of gelato in a waffle cone runs just $1.50.
CNBC, which is airing an hour-long feature called “The Costco Craze” on Thursday night, reports that the warehouse club retailer expects to “sell more than 300 million hot dogs, pizzas, and other items at its food courts this year.”
The phrase “food court” may be overstating things a bit. In any event, it’s clear that plenty of consumers wind up swinging by Costco when they’re hungry and don’t want to drop a lot of dough on a quick bite. Unfortunately for them, what’s likely to happen is that they’ll wind up dropping dough on some of the many other things for sale at Costco.
That, naturally, is part of the reason why Costco’s slices and hot dogs are so cheap. Costco says it makes “modest profits” on food court sales, but even if these sales represent loss leaders—some items are probably just that—offering these foods at prices that are better values than a typical fast-food restaurant’s dollar menu makes good business sense. Anyone eating a hot dog or a slice in Costco is a heck of a lot more likely to browse the aisles and buy something compared to someone who hasn’t even entered the store.
The restaurants at IKEA stores operate on a similar theory: The retailer probably isn’t making much money directly by selling platters of bacon, eggs, and hash browns for 99¢ or kids’ meal combos for $2.49, which is cheaper than any Happy Meal. IKEA even goes so far as to regularly give meals away for free on holiday weekends to all shoppers.
What the giveaways or near-giveaways do is give consumers an excuse to stop by the store. And before or after filling their bellies, why not do a little shopping? It’s the least you can do; the store was just nice enough to feed you at little or no charge. Retailers understand this mentality better than consumers do—studies have shown that shoppers are more inclined to buy something after being given a freebie. The stores bank on the idea that consumers feel obligated to reciprocate.
Even if consumers feel no such obligation, there’s the convenience factor. What makes cheap food an especially good marketing ploy for the Costcos and IKEAs of the world is that these stores have so many household goods that the average shopper always needs something in one or more of the aisles.
Oh, and you may have noticed, there’s no drive-thru at IKEA, Costco, BJ’s, or Sam’s Club. If there were, these stores would certainly sell more food. But that’s not really the point. A drive-thru would give customers the option to order some grub without ever setting eyes on any of the retailer’s merchandise—which is a major reason why the food is so inexpensive in the first place.