Costco held its $4.99 rotisserie chicken by building its own chicken company

In a Vox report from July 2022, Kenny Torrella describes how Costco's rotisserie chicken stayed at $4.99 for 11 years before that, while US chicken prices rose 18.6 percent between June 2021 and June 2022. Most rotisserie chickens cost $6 to $10. Costco said in 2015 that it keeps the price low because it treats the chicken as a loss leader, meant to bring members in to buy items such as bulk toilet paper.

In 2019 Costco went further and became the first US retailer to set up its own chicken business. It built a feed mill, hatchery and slaughter plant in Nebraska under the name Lincoln Premium Poultry (LPP) and contracted nearby farmers in Nebraska and Iowa to raise over 100 million birds a year. Vox says the move could save up to 35 cents per bird and calls it classic vertical integration, as Tyson Foods did, except that here the producer is also the retailer.

Costco changed some terms. According to Vox it uses controlled atmosphere stunning, which is more humane than the industry standard, and says it dropped the tournament pay system that pits contract farmers against each other. Critics cited in the piece say it still follows Big Chicken practices, and note neighbours' complaints about odour near barns owned by Gallus Capital, a private equity firm, and a lawsuit filed over bird welfare.

Own the whole chicken chain, so the loss leader's cost falls inside Costco and the $4.99 price survives inflation.

A loss leader earns its keep by drawing shoppers to higher-margin bulk goods, so its price matters more than its profit.

Owning the feed mill, hatchery and plant removes the margin that outside suppliers would add.

Selling birds whole means less processing and cutting than other chicken products.

Costco's volume makes a 100-million-bird supply chain worth building.

If a loss leader's price is the draw, take control of its supply chain, because every cent you shave off its cost is a cent you can keep absorbing.

As of July 2022 the chicken was still $4.99 and Costco made clear it meant to keep it. The company said the Nebraska plant brought about 1,100 jobs. Costco had not signed the Better Chicken Commitment, which would probably make the price hard to hold, and said only that it would explore giving birds more space. Vox notes a 2020 Mercy For Animals investigation of a Costco chicken farm, a lawsuit filed in 2022 under animal neglect laws, and local complaints in Nebraska. The 35-cent saving is Vox's estimate.