Frittering away Frugality

Despite my protestation, we went to a big box store today, COSTCO to be specific.

I am not a fan of these stores. They don’t save people money, they encourage spending and for some people waste as well. It’s all hard to resist, but I try, yet sometimes fail. Today I bought a three foot bag of popcorn and a bag of dried apricots-I never bought those in my life). 

These stores encourage people to buy what they don’t need and in volume that may not be able to use. Just stand by the door sometime and look at the contents of carts. There is a pretty high percentage of what we typically call junk food. 

You cannot talk about Costco’s business model without mentioning the $1.50 hot dog combo and the $4.99 rotisserie chicken.

Costco deliberately loses money (or breaks even) on these items to drive foot traffic. Because the rotisserie chickens are always placed at the very back of the warehouse, you are forced to walk past thousands of dollars of high-margin items—electronics, clothing, snacks, seasonal goods—just to grab dinner. By the time you get to the register, that $5 chicken has turned into a $200 purchase.

Costco’s profit margin on sales is only 1-2% so it must create volume. 50-60% of profits come from membership fees, 83 million of them (generating about $5 billion in revenue, virtual 100% profit. It’s a good business model as is their employee compensation structure to retain workers, but you need to be a disciplined shopper or that bag of popcorn will turn into two huge pies, a few cases of soda, and a gallon jug of mayo.

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