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Costco Is Losing on Cheap Chicken, but Kale Margins Are Healthy

Rotisserie chickens prepared at Costco in Mountain View, Calif., in 2010
Rotisserie chickens prepared at Costco in Mountain View, Calif., in 2010Photograph by Paul Sakuma/AP Photo

Selling a product at or below profit margins to get shoppers in the door—a so-called loss leader—is a retail strategy as old as Thanksgiving turkeys. But it only works if the customers buy other things. At Costco last quarter, many didn’t: Shoppers instead stuck to the cheap groceries, specifically meat, that the giant warehouse club uses to attract them.

Costco sales rose 6 percent, to $25.8 billion, and yet profit dropped 15 percent, to $463 million, in part because customers didn’t buy as many high-margin electronics such as cameras and computers. The company’s operating margin dipped from 3 percent, to 2.8 percent, which is a big deal for an enterprise of Costco’s size.