From one of my friends who is a Costco employee: Supposedly the CEO went on vacation in Mexico and decided to stop by one of the Costco stores down there for a hot dog, only to find that the price (when converted from pesos to dollars) was higher than $1.50. Because of this entire management staff was fired at that store. I’m sure this will get lost, but Costco actually started making their own hotdogs because of this. And…they decided that every location would have a “restaurant” so their employees would have a place to eat as well as their members.
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The hot dogs have been an item which has gone above and below the break-even point many times over the years. As Costco would expand and become less efficient, their cost would go up–they took measures to cut costs further by insourcing & streamlining increasingly more of their production. They make a profit through memberships and credit card deals. All of the in-store items are sold as near to cost as they can be, which only facilitates payment of employees, electrical bills, rent, etc.