The Devious Reason Why Costco’s Food Court Is So Cheap
I, like most red blooded Americans, love Costco. It’s like Disneyland for adults except instead of marveling at fantastical rides, you marvel at Costco’s ridiculously cheap prices — where else can you buy enough bulk-sized containers of peanut butter to last you for the next 3 years?
One of the many things that makes Costco magical is its food court. There you can feed yourself or your family on the cheap with options such as a chicken bake, pizza, and Costco’s infamous hot dog combo. Shoppers can enjoy a hot dog and a 20 oz soda (with free refills!) for only $1.50 — a price that has been held constant for the last 30 years.
You may believe that Costco sells food so cheaply because Costco is just looking out for the family who wants to eat an affordable meal while doing their weekly grocery shopping. But given Costco is a public for-profit company, I think there’s more to the story. Recently I’ve had time to reflect on the questions that keep me up at night and why Costco’s food court prices are so low is at the top of that list. I believe there could be an extremely devious reason that Costco offers delicious food at such an affordable price. But first, let’s go through some of the more obvious reasons.
1. Costco makes money off its food.
Costco’s food is tasty but they aren’t exactly selling lobster rolls. Living in NYC, I encounter street vendors selling hot dogs for a dollar which means that Costco is still making a profit off its hot dogs. But at the same time, given that Costco could use the food court space for more profitable ventures — such as stocking more family-sized bags of M&Ms — making money can’t be Costco’s number one reason for offering food.
2. Costco sells food cheaply to get people to come to Costco.
Maybe Costco keeps its food prices so low because it increases Costco’s foot traffic. While I don’t think people consciously decide to go to Costco because of the food (or maybe they do, I don’t judge…), I imagine more than a few Costco trips have been swayed because of their food court.
Imagine you are deciding between driving 20 minutes to Costco and driving 5 minutes to your neighborhood grocery store. You are torn between the cheap prices of Costco and the convenience of shopping nearby. Then you remember that you can grab an entire pizza at Costco for only $9.99 and suddenly you and your family are on your way to the land of multi-pack toothpastes.
3. The combo creates positive publicity for Costco
A quick Google search about Costco’s hot dog combo yields an impressive number of website, blogs, and articles dedicated to Costco’s consistently low food prices. There’s even a college admission essay written about Costco’s food court. People love Costco’s food.
I love Costco’s food.
Consequently, Costco may keep the prices of its food so low to drive its positive brand image. I mean, even I’m writing an article about it.
The Super Sneaky Reason Costco Keeps Its Food Prices So Low
But here’s another potential reason.
Let’s take a look at your typical Costco layout with an image I totally didn’t just pull off Google.
If you notice, the food court is located at the very end of the typical shopping trip.
“Oh how thoughtfully designed,” you may be thinking “Costco knows that after a long day of hauling paper-towel rolls and eggs into your shopping cart, nothing satisfies as much as a delicious hot dog and ice-cold soda.”
That may be true, but there’s also a lot of research about how we make really good decisions when we’re tired and/or hungry. And by really good decisions I mean awful decisions. It’s scary how much being tired and hungry probably affects our day to day lives.
Jonathan Levav of Columbia Business School in New York looked at parole hearings in Israeli prisons and found that hungrier judges were more likely to deny parole to prisoners. At the beginning of the day, prisoners had a 65% chance of being paroled by a judge, but as the day dragged on, the chance of being paroled drops close to 0%. Right after a break or lunch, however, the chance of prisoners being paroled goes back to 65%. Basically as the blood sugar of the judge dropped, so too did the prisoner’s chances of getting parole.
Symmonds and colleagues also ran an experiment where participants were either well fed or purposely starved before being asked to gamble. Basically,hungry participants were much more likely to make risky decisions than their well-fed counterparts.
Translating this into the world of shopping, Brian Wansink found that not only do people buy more groceries when hungry, they also buy unhealthier groceries. If you’ve ever grabbed a box of Hot Pockets while browsing the frozen foods aisle while hungry, I’m sure you can relate. I know I can.
Alison Xu took this idea a step further by showing we buy way more stuff, even if it’s not food related when we are hungry.
So Costco’s floorplan is thoughtfully designed indeed. By placing the food court at the very last stop of your trip, Costco ensures you’ll spend the majority of your trip fantasizing about the chicken bake you’ll be enjoying at the end. As a result, you’ll unconsciously buy more food and other items because of it (wouldn’t that piano look great in your living room?).
Especially for people that plan a meal at the end of their shopping trip, Costco basically guarantees you’ll do most of your shopping at peak hunger levels. Is it any surprise when we come home with a 20lb bag of sour patch kids and all ten seasons of Friends on Blu-ray?
The “dining-where-you-shop” trend isn’t isolated to Costco. Ikea is also known for its cheap eats and delectable Swedish meatballs. And where is their restaurant located? Here’s a map of a typical floor layout
More and more retailers are turning their shops into “destinations” where you can not only shop, but also enjoy other experiences such as enjoying a meal, grabbing a coffee, even getting a haircut. Whole Foods, Nordstrom, Eataly, are just a few stores that are adopting this trend. And where are these in-store restaurants located? Always at the end of your journey.
Do I think these placements are effective? Yes.
Do I think they’re intentional? I’ll let you decide.
But am I upset? Not as long as I can still enjoy a $1.50 hot dog combo after a long day of shopping.
Note: I wrote this article more to highlight the poor decisions we make when we’re hungry than to seriously question Costco’s (or any other company’s) business motives. My honest opinion is that Costco offers cheap food because of the obvious reasons I initially outlined rather than because they’re trying to exploit our shopping behavior while hungry. I love shopping at Costco and from everything I know about the company, they generally try to do right by their shoppers. I do believe though, that many family-sized bags of Sour Patch Kids have been bought because people have been hungry while grocery shopping.
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