Costco has built up quite the mythology around its food court.
People appreciate the low prices and the famous $1.50 hot-dog-and-soda deal. It's not that the food is especially good; it's more the mix of pricing and decent quality along with the convenience of it being right there while you're shopping.
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Even a recent decision to ban nonmembers from buying anything at its food court has not hurt sales.
Costco (COST) CFO Gary Millerchip addressed the matter during the company's third-quarter-earnings call.
"Within our ancillary businesses, the food court had the strongest quarterly sales with the continued success of the chocolate chip cookie that was added to the food court this year," he said.
Costco members, however, remain sensitive to any changes at the food court. They welcome new items, but since that often means losing older items, any change meets resistance.
The warehouse club's most recent food-court changes, however, are not menu-related. Rather, Costco has changed how its food courts operate, and that's something members will certainly notice.
Image source: Patrick T. FALLON / AFP) (Photo by PATRICK T. FALLON/AFP via Getty Images
Costco makes a food-court change
Costco has made a substantial change to how customers order and receive food in its food court. The change can make some members wait longer to get their orders.
"The new system has customers ordering from digital kiosks and then waiting in a single-file line while their orders were completed one by one," Tasting Table reported. "This isn't all that different from how most Costco food courts operate, but if you're a regular, you might notice that the number system is missing.
Under the old system, it worked like a deli, where workers called out the number of finished orders. The new setup has customers line up and requires Costco employees to fill orders in the order they were submitted.
That seems fair, but it can put someone with a simple order in line behind people who may have large and complicated orders.
The system so far has been rolled out at select Costco locations, and it's unclear whether it will be adopted nationally.
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Nothing slows Costco's growth
Costco continues to steadily add members and maintain strong subscription-renewal rates.
"We reported membership-fee income of $1.123 billion, an increase of $79 million or 7.6% year over year. ... In terms of renewal rates, at Q3 end our U.S. and Canada renewal rate was 93%, up one-tenth of a percent from Q2 end," Millerchip said.
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The numbers are nearly as strong globally.
"The worldwide rate came in at 90.5%, the same as Q2 end," he added.
Costco said on July 10 that on Sept. 1 the cost of its Gold Star and Executive memberships would rise $5 and $10 respectively. In addition, the cash back offered to Executive members will rise to $1,250 a year from $1,000.
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Costco members are unlikely to be angry about the membership-price rise. Traditionally, the chain raises membership prices roughly every 5 1/2 years. In this case, it will be raising them after about 7 years.
Costco ended Q3 with 74.5 million paid household members, up 7.8% from a year earlier, and 133.9 million cardholders, up 7.4% year over year.
At the end of fiscal Q3, the chain had 34.5 million paid Executive memberships, an increase of 661,000 since fiscal Q2 end. Executive members now represent more than 46% of paid members and 73.1% of its worldwide sales.
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