Upon approaching a certain section of Costco, a delicious aroma draws you closer to the source. A flock of people wait patiently, watching the rows of golden-brown birds rotating on the grill. A whole, fully cooked rotisserie chicken for a glorious price of $4.99 is too tempting not to buy.
Everyday, people walk away with their carefully picked, plump trophies without thinking about how the wholesale giant maintains that low price.
Costco partnered with Lincoln Premium Poultry (LPP) to build its own poultry production line in Fremont, Nebraska, and it is scheduled to open September 2019. LPP, the entity that will be in charge of the poultry production, is expected to process about 2 million chickens per weekday, according to Jessica Kolterman, a spokeswoman for LPP.
“They were looking at the projection of the chickens they would need in their stores moving forward over the next several years,” said Kolterman. “And the projections were showing a growth, a very, very aggressive growth pattern of what people were buying in the stores.”
By creating this production line, the company can control its own supply and demand. Nebraska’s cheap corn feed helps maintain their prices at $4.99, according to Harvest Public Media.
The facility will consist of a processing plant, hatchery, and feed mill. In addition, more than 100 new chicken farms around the area have signed contracts to raise the chickens, according to Harvest.
Facility Aims for Transparency
There were some concerns among locals about potential smells, water sanitation, and other environmental issues. But Kolterman said that those concerns likely came from people who do not know enough about modern barns.
The spokeswoman said the barns would be using advanced technology to keep everything fully enclosed. The doors close before the birds are unloaded from the truck. Even if there were to be a smell, it would not leave the building.
They will try their best to educate the public, show them how clean and safe it can be, and ensure the general care of the poultry and workers.
“We have a glass walkway that goes through the facility from the beginning to the end. So we can take people through, transparently show them here’s what food-processing looks like in a modern society,” said Kolterman.
She also said that the three pillars of their contract include biosecurity to ensure the birds’ safety, strict animal welfare policies for farmers, and nutrient management. This gives Costco an idea of how the birds are being raised and what farmers are doing.
“We have the strict protocols, and we require our growers to get an environmental quality permit through the local permitting processes, even though permits are not required by law,” said Kolterman.
All technical factors aside, the reason for Costco’s foray into the chicken business may simply be to attract and retain its customers. In this respect, the wholesale store is actually losing profit to maintain its commitment.
“I can only tell you what history has shown us: When others were raising their chicken prices from $4.99 to $5.99, we [Costco] were willing to eat, if you will, $30 million to $40 million a year in gross margin by keeping it at $4.99. That’s what we do for a living,” Costco’s chief financial officer Richard Galanti told The Seattle Times.
Still, customers’ needs go first. “If your demand is for a certain product, you know, we have to deliver that product,” said Kolterman.