‘Business equivalent of taking heroin’: Why Costco refuses to raise prices even if no one will notice

“He says, ‘It’s like the business equivalent of taking heroin,’” Ries explained in a viral clip posted online. “‘You do it once, and then you [have] got to do it again, and again, and again. Next thing you know, you’re not the low-price leader.’”

The point wasn’t really about 3%. It was about what happens when you normalize it.

Once prices start creeping up, it gets easier to do it again. Eventually, Sinegal worried Costco would drift away from the identity customers had come to trust.

That thinking helps explain why loyalty to the warehouse giant remains unusually strong, even as prices rise almost everywhere else.

Costco reported nearly $250 billion in revenue for fiscal 2024, while renewal rates in the U.S. and Canada stayed above 92%, according to its latest earnings report.

Why Costco avoids chasing higher margins

Most retailers try to squeeze as much profit as they can out of every sale, but Costco takes the opposite approach.

Instead of pushing markups, it caps margins — around 14% on national brands and 15% on Kirkland Signature items — and makes most of its profit from annual membership fees.

That model keeps prices lower than many competitors, but it also builds something harder to measure: trust.

Ries compared the philosophy to a line often linked to Jeff Bezos: “Your margin is my opportunity.” When traditional retailers push prices too far, they leave space for someone else to undercut them.

Costco leans into that reality. It’s part of why the company has kept its $1.50 hot dog-and-soda combo unchanged for decades, even as inflation has surged around it.

By late 2024, Costco’s membership renewal rate in the U.S. and Canada hit a staggering 92.8%. That is an unusually high retention rate for any subscription-style business — especially at a time when most households are desperately trying to cut back on spending.

Why this resonates right now

Timing is everything. Over the past few years, grocery bills have climbed sharply, with food prices rising more than 25% between 2020 and 2025, according to standard inflation data.

At the same time, shoppers have been dealing with shrinking package sizes, added fees, and price hikes that aren’t always obvious until checkout.