But in doing so, Costco is putting a lot of eggs in one basket.

By Mike Pomranz
October 23, 2018

Much like its food court with its signature $1.50 hot dog and soda combo, Costco has relied for years on its $4.99 rotisserie chicken as a way to continue to drive customers into the store. Back in 2015, CFO Richard Galanti even said his company was so committed to keeping the price of those whole chickens at $5 that “we were willing to eat, if you will, $30 to $40 million a year in gross margin.” Of course, one way to keep costs down is to get into the chicken game yourself, and that’s exactly what the warehouse club is currently doing, building its own production facility in Nebraska.

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Located in the city of Fremont—population 26,000—the new facility will occupy a massive 414-acre site and cost $275 million to complete, according to Business Insider. Once open, slated for September 2019, the plant will employ 800 people and, even more impressively, process around two million chickens every single week.

If that two-million-chickens-per-week number leaves you wondering just how many chickens Costco needs, well, this might surprise you even more: This new facility won’t even cover half of Costco’s rotisserie chicken business. NPR reports that the retailer sells approximately 60 million of those pre-cooked chickens a year. “All of our barns in Nebraska and Iowa collectively will supply about 40 percent of Costco's needs,” Jessica Kolterman, a spokeswoman for Costco’s Lincoln Premium Poultry, a company created to handle the project, was quoted as saying. “That will roughly cover the western half of the United States, Alaska and Hawaii.”

And speaking of farms, though the new facility will have a processing plant, hatchery, and feed mill, Costco will reportedly still have to contract with around 100 to 125 nearby farmers to grow the birds. Since current farms aren’t able to fill that demand, NPR explains that most of these chickens will have to be raised in newly-built barns by farmers who, much like Costco, will be getting into raising chickens themselves. As a result, it’s not just Costco taking a big risk, but local farmers too.

“My biggest thing is, if something ever happened to [Costco], who's going to fill the barns? Because you're putting a lot of money down for barns,” explained Marshall Lutjens, a farmer from Columbus, Nebraska who’s considering taking up the chicken offer. Talk about putting your eggs in one basket. Sounds like Costco has more riding on $5 rotisserie chickens than we may have even realized.

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