How does Costco manage inflation?

As inflation continues to soar Close to its highest level in 40 yearsBusinesses and consumers alike suffer the pain of rising prices.

One Costco executive addressed the issue Thursday, providing insight into how the retailer can handle higher prices while still providing value to customers.

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Costco Retail Wholesale Club in Austin, Texas, on December 12, 2016. (Reuters/Mohamed Khurshid/Reuters Photo)

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Bob Nelson, senior vice president of finance and investor relations, noted during the third quarter of 2022 for the retailer that inflation is “ongoing,” saying that “pressures from higher commodity prices, rising wages, move up And supply chain disruptions “whole” still exist.

In the first quarter of the fiscal year, Nelson said, Costco estimated price inflation at around 4.5% to 5%, and in the 6% range for the second quarter. “For the third quarter and speaking to dealers, the estimated price inflation was in the 7% range,” he said.

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Nelson was asked how the company is balancing some of the price increases—particularly with the prices of some items rising well above his estimates—while continuing to deliver value to customers.

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Cars line up for gas at a Costco gas station in Vallejo, California. (Theron W. Henderson/Getty Images/Getty Images)

“We always want to be the best value on the market,” Nelson said. “And to the extent that we continue to show that, I think it’s easier for us to pass on higher prices, or higher freight costs, or the cost of raw materials, assuming we’re demonstrating that value in the market.”

Nelson gave the example of where the company reluctantly raised the price of cakes and croissants by one dollar because the cost of the various raw materials that go into them had tripled, tripled and even quadrupled.

One area where Costco hasn’t gotten past the price hike yet is through membership fees—for now.

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The company typically raises membership fees every five or six years, and next month will be the five-year mark of the last increase in 2017. On an earlier quarterly earnings call, another Costco executive noted that June would be its anniversary, stir up speculation Customers should expect an increase around this time.

But Nelson said on Thursday’s call that “given the current macro environment, historically high inflation and the burden on our members and all consumers in general, we believe that increasing membership fees today before our usual timing is not the time.”

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Shoppers search for merchandise at a Costco wholesale store on August 4, 2020, in Colchester, Vermont. (Robert Nickelsberg/Getty Images/Getty Images)

Nelson also confirmed that there are currently no plans to raise the price of the popular $1.50 hot dog and soda mix.

Costco has raised prices in some areas on food items and dispersals, he said, adding that “the balance was a little more in non-food items than in foods,” but the company focused more on items than categories.

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“We saw fresh food inflation decreased slightly in the third quarter compared to the second quarter of last year as we started riding higher meat prices,” Nelson said. “We believe the strong increases in our sales and relatively consistent margins show that we continued to strike the right balance in passing on higher costs.”