One of Costco Wholesale's (COST) most popular products is turning into a headache for the warehouse retailer, and it's one the company doesn't even make any money on.
The company has kept the price of its popular Kirkland Rotisserie Chicken at $4.99 since 2009. Costco willingly loses money on the chickens to maintain customer loyalty and draw visits that result in sales of other profitable products.
Now, however, with inflation surging, the company is facing additional cost pressures.
But that's not the only problem.
Concerned with the animal welfare costs of producing such cheap poultry, two shareholders in Washington state recently filed a lawsuit accusing Costco of "illegal neglect and abandonment" when it comes to how it raises poultry at its new Nebraska facility.
The lawsuit focuses on the local 400,000-square-foot Fremont, Neb. poultry processing facility that churns out over one million ready-to-eat chickens every week, the Nebraska Examiner reported.
Costco's Chickens Are a Big Deal
The plant, which opened in 2020, cost $450 million to build and will eventually be able to process half the 106 million rotisserie chickens sold every year at Costco stores across the country.
The lawsuit claims that mistreating chickens is "an integral part of the company's poultry production strategy and its business model."
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It accuses Costco of using barns that hold up to 45,000 chickens in a single enclosure and growing them so "unnaturally" fast that they develop muscle conditions known in the industry as "white striping."
While it was "once lauded as an innovative warehouse club, Costco today represents a grim existence for animals in Nebraska who are warehoused in inescapable misery," Alene Anello, the attorney representing the shareholders said in a statement to the Nebraska Examiner.
The shareholders who filed the suit are Krystil Smith and Tyler Lobdell.
Will This Lawsuit Lead Anywhere?
Shareholder and class actions lawsuits often fizzle out for a variety of reasons — from not having sufficient evidence to support the claims to the disproportionate resources required to go up against a global chain in court.
But sometimes, the public outcry can set off a ripple effect that causes the chain negative publicity and forces it to take action.
After PETA started posting videos of monkeys being used "like coconut-picking machines" to make the Chaokoh chain of coconut milk, Costco, Walmart (WMT), Target Target (TGT) and Kroger (KR) all pulled the Thai product from their shelves.
This is not the first time that Costco's rotisserie chickens in particular have come under scrutiny. As Insider reported, staff from the Mercy for Animals nonprofit visited the Nebraska chicken-processing facility in 2021 and reported seeing "chickens struggling to walk under their own unnatural weight" and "bodies burned bare from ammonia-laden litter."
Costco did not immediately respond to TheStreet's request for comment on the lawsuit.
After the Mercy for Animals Report came out, Costco said that it was "committed to maintaining the highest standards of animal welfare, humane processes and ethical conduct throughout the supply chain."
