Puget Sound Business Journal: Costco bets big on loss-leading birds with $300 million chicken factory
by Jim Hammerand | Jan 8, 2018, 6:07pm
The Wall Street Journal featured Costco in an examination of how retailers can thrive by selling roasted chickens below cost.
The $4.99 chicken deal was so important to the Issaquah-based warehouse retailer that it took at least a $30 million profit hit to subsidize the product during a 2015 bird flu outbreak.
Costco beats the competition with bigger birds, bigger ovens and less expensive packaging. The next step is a chicken processing plant that will cost about $300 million and supply Costco at a lower price than suppliers offer.
Costco said it sold 87 million rotisserie chickens last year. The new plant will process about 100 million birds per year, or about a quarter of Costco’s annual appetite, Chief Financial Officer Richard Galanti said on an earnings call in October.
“I think the biggest single commitment we’ve made is this new chicken plant,” he said, according to a Seeking Alpha transcript.
Costco also has two plants run by well-known but unnamed suppliers (one of which is likely Pilgrim’s Pride) that it retrofitted for higher efficiency, Galanti said.
“Guess what: if you are to greatly reduce the SKUs, you make the manufacturing more efficient, you can save — given the week and given what happens with all the byproduct and the markets themselves — we can guarantee sourcing and lower our costs by anywhere from 10 cents to 35 cents a bird,” he said.