Walter Craig Jelinek was born in Los Angeles County on August 8th, 1952, and grew up a distant sixty miles north of downtown L.A. in a smaller charter city called Lancaster. His father helped build B-70 bombers at the height of the cold war, these aircraft were nuclear-armed, deep-penetration strategic bombers destined for the United States Air Force Strategic Air Command, potentially even a cataclysmic flight over the Soviet Union. That is until the program was canned in 1961, after which point, Craig’s father became involved in the manufacturing process of B-1 bombers, which are supersonic variable-sweep wing, heavy bombers slated for use by the United States Air Force until 2036.
Being raised in the high-desert shadows of Edwards Air Force Base didn’t lend much upward mobility for this young man as he graduated from Antelope Valley High School in 1970 and opted to stick around a handful more years to pursue his associate’s degree at a local junior college. He got his first job as a part-time food stocker with Fed-Mart’s Lancaster franchise.
After one fateful shift, he returned home to his father ranting on about how politicians got in the way of defense production, consequently, inhibiting his own labor opportunities. “Son, do not get into the aircraft business,” he pleaded, before uttering several choice words the future chief executive would never forget. “You know what? People will always have to eat.”
Fed-Mart and Gemco
Craig Jelinek eventually graduated from San Diego State University in 1975 with a Bachelor’s degree in business administration. He chose to continue climbing up the management ranks at Fed-Mart, steadily working his way to operations manager for its Los Angeles division. The company was owned by Sol Price – a pioneer of the “warehouse store” retail model – and simultaneously employed another decision-maker by the name of Jim Sinegal, who later founded Costco in 1983.
Needless to say, Jelinek has been surrounded by the industry’s most legendary operators from the very beginning. If you don’t take our word for it, surely Sam Walton’s, the founder of Wal-Mart (hint: he liked the sound of Fed-Mart), must count for something considering he once admitted in his book Made in America, “I guess I’ve stolen, I actually prefer the word ‘borrowed,’ as many ideas from Sol Price as from anybody else in the business.”
A German investor named Hugo Mann bought Fed-Mart out in 1981, rather aggressively deciding to take it private with plans for rapid expansion. However, the early 1980s saw the company begin to lose money, which led to store closures taking place mostly outside of California. Mann ultimately closed the chain in 1982 and renamed the company Sunbelt Realty amidst his retaining land titles to the forty-six remaining Fed-Mart sites. Thirty-five of those buildings were leased out to Target, along with another dozen or so to Ralph’s Grocery Stores, all the while, one Craig Jelinek was left in the aftermath scrambling for a new job.
He picked up not far from where he left off: in the management annals of an Orange County-based membership department store chain called Gemco, a subsidiary of Lucky Stores. Jelinek jumped ship following just two years with the company, still in his early thirties, he had caught wind of a promising wholesale venture a former colleague recently launched. Perhaps he translated some worrisome writing on the walls at Gemco as well, taking into account, Lucky Stores announced in 1986 that they’d close the discount chain come year’s end, successively, many of the properties were sold to Target in a move that left 9,000 employees without jobs.
The couple years he spent at Gemco provided further experience in a wholesale, members-only environment where everything from storing purchased groceries until members finished shopping to offering free babysitting services as an adult roamed about the store was attempted. Shortly after Craig Jelinek joined Costco in 1984, he helped the company open its sixth warehouse in Tukwila, Washington; by the start of 1985, they had grown to encompass nine Costco locations in five states, serving over 200,000 members.
Not to mention, 85′ would be the year they’d open their first hot dog cart outside of a San Diego warehouse and sell a hot dog and a soda for $1.50 – a famously beloved price yet to increase even after so many decades. “Trust me, that [price] is never going to change,” declares Jelinek. “If I have to subsidize it personally, it’s not going to change.”
He played a key role in Costco’s expansion into Nevada and California, per the Committee for Economic Development. As Assistant Vice President, Regional Manager of what was then called the Southwest Region, he was responsible for the opening of the Reno and Las Vegas warehouses in Nevada, as well as openings in Fresno, Bakersfield, Stockton, and numerous other locations in both Northern and Southern California.
“The mid-80s were probably the most challenging years of my career,” says Jelinek, whose duties included but were not limited to running operations, working with warehouse managers, attending city council meetings, and convening with architects. “We were expanding rapidly, but didn’t yet have many central support departments, so I had to wear a lot of hats.”
January of 1989 saw Costco operating forty-six warehouses spread throughout the west coast, the east coast, and Canada. Having earned the right to a nearly unlimited range of decision-making power, Jelinek can recall designing what was then amounting to the biggest building the company ever had, a 150,000 square foot location for El Centro, CA. He ran into a few hiccups along the way, prompting the company’s co-founder, Jim Sinegal, to help steer the figurative boat clear of treacherously rocky waters.
“I was relatively young then, and I put the nursery where I wanted it to go, which was in direct sun. I don’t know if you know where El Centro, Calif., is, but it usually cools down to 110 degrees in the summer,” he divulges to the Seattle Times. “Then I wanted to make sure we had the most possible space, so to exit the building I put this fence in so nobody could practically get through. I made it where you could get more merchandise at the entrance, and his [Jim Sinegal’s] exact words – as his voice started to rise, he said, ‘Why don’t you rethink this?'”
In 1993, Costco merged with a members-only wholesaler doing billions in revenue called Price Club, founded by none other than, the legend himself, Sol Price. For a brief period of time, the combined entity was known as PriceCostco and steamrolled towards the new century with over 200 warehouses, an exclusive private label named Kirkland Signatures, and recently added locations in Europe and Mexico.
An Immaculate Business Model
The wholesale retail concept was first brought to fruition by Sol Price in 1976 after he got forced out of his very own FedMart. When launching Price Club that year, his business model was simple: sell things as cheaply as possible. He figured it reasonable to offer brand-name, top-quality merchandise at an average gross margin of less than 9.5% to a highly exclusive demographic of annually subscribed clientele, or in other words, members, that fell in select categories such as entrepreneurs with businesses holding resale licenses and individuals working for the federal, state or local governments, utilities, financial institutions and members of certain credit unions.
“Our members are better than the general public because their employment is stable, they write fewer bad checks and don’t steal,” Price once emphasized. Due to the rapid success his revolutionary retail creation experienced, amounting to $2 billion in sales within a decade of opening, dozens of copycat companies soon started sprouting up all over the country. One of those was Costco, ironically founded by a former Price Club executive of his named Jim Sinegal, another – Sam’s Club – got spun off by Wal-Mart following a foreboding evening’s dinner between Sam Walton and Price.
Later, when asked how it felt to be the father of an industry, Sol wittingly replied, “I wish I’d worn a condom.” Because the business model itself couldn’t be patented, whenever new competitors stepped onto the playing field, market success simply went to the best strategist.
Sinegal of Costco once explained to the Los Angeles Times his company’s approach during the mid-80s, “we are working to get established in certain markets, to preempt those markets. That’s why we expanded as fast as we did, and that’s the posture you’ll see taken by most of the other companies in the industry. Competition will happen, but we want to call our shots.”
What finally sweetened the wholesale-retail model pot was Price’s steadfast dedication to paying entry-level store employees handsomely, far above government-enforced minimum wage. “Well, I think when you talk about Sol Price…one thing that we [Jim Sinegal] both learned from him is to continue to always do what’s right for your employees and always try to do what’s right for the consumer,” reflected Craig Jelinek in an interview with The Motley Fool. “If you keep the consumer and your employees and do the right thing, things have a way of working out for you. You build trust with your employees, you build trust with your consumer – which is really just common sense and good business – but I think that’s probably what we learned the most. Just always do the right thing.”
Returning to Puget Sound in 1992, Jelinek took on the title Senior Vice President of Operations for the West Coast until the Price Club merger occurred in October 1993, at which point, he was placed in charge of the Northwest Region. It was in 1997 that executives renamed PriceCostco to Costco Wholesale Corporation and transformed each Price Club into a Costco – certifying a single cohesive brand. Over the next eight years, Costco would position itself as the premier wholesale retailer with profits amounting to $882 million, on sales of $47.1 billion, a gargantuan figure that accounted for half the market’s total value.
By 2005, they were serving 44.6 million members, generating sales north of $225 million from Costco.com, operating 457 stores across North America but also in Britain, South Korea, Taiwan, and Japan, not to mention, each warehouse averaged $121 million in sales annually, far more than the $70 million for Sam’s Clubs – their nearest competitor. Although Sam’s Club had 642 stores open that year, 185 more than Costco, they never seemed capable of achieving the sort of social cache the latter naturally attracted; Perhaps Wal-Mart’s controversial reputation dragged theirs down with it.
“I don’t think you’ll ever see us in the small-time markets you see Wal-Mart in. There’s a Wal-Mart in Lake Chelan now, and there are also these small hardware and dress stores. Those people cannot compete against a Wal-Mart…those are the type of people that Wal-Mart, over time, has hurt,” surmises Craig Jelinek. “Also, Wal-Mart has a bad reputation for not paying good wages and not having good benefits. It’s very difficult for somebody to say Costco shouldn’t come in when they’re going to have 200 jobs coming into the marketplace paying good wages and benefits.”
Jelinek was promoted to Executive Vice President and COO of Merchandising in 2004, overseeing E-commerce, Fresh Foods, Meat, Bakery, Deli, Produce, Foods, Non-Foods, Pharmacy, Home/Business Centers and Purchasing. Milestones swiftly faded in the rearview mirror throughout his tenure at that role as each store climbed to an average of $130 million in sales come 2007, Costco.com exceeded $1 billion in annual sales the same year, 91 million hot dog and soda combinations were sold – at a religious $1.50 each – in 2009, and by 2011’s fiscal end, the company had been ranked 25th on the Fortune 500 and crowned the third-largest retailer in America with 1.7 million transactions per day occurring in some 592 warehouse locations.
Craig Jelinek Saves the $1.50 Hot Dog
As decades passed with an average annual inflation rate of 2.48% and hot dogs and soda’s sold, Craig Jelinek was running into trouble when it came to keeping the $1.50 combo deal mildly profitable, who knows, breaking even might have been at risk as well. “I came to [Jim Sinegal] once and I said, ‘Jim, we can’t sell this hot dog for a buck fifty. We are losing our rear ends,” he shared during an Issaquah Chamber of Commerce luncheon. “And he said, ‘If you raise the effing hot dog, I will kill you. Figure it out.’ That’s all I really needed.”
Experiencing supply costs that could threaten the combo’s price are inevitable if not due to inflation alone, nevertheless, they cut ties with Hebrew National, the brand that formerly supplied the weiners, in 2009 and built their own hot dog manufacturing plant in Los Angeles to make Kirkland Signature hot dogs that would henceforth be used by Costco food courts. Shortly thereafter, a second plant was constructed in Chicago to meet demand.
On the soft drink battlefront, when their deal with Coca-Cola warranted a price increase, Costco opted to ditch them for Pepsi in 2013, ensuring their trademark $1.50 price sticker would be kept intact. San Francisco enacted a 2016 sugary drink tax that would have raised the consumers’ cost, local Costco warehouses have defended the hot dog and a soda price by only offering diet beverages, which are exempt from the law.
“It’s the direction of the city to go to non-sugary drinks,” Kevin Heuer, general manager of the 10th Street location, explained to SF Gate. “Also, we don’t want to pass on that cost to our customers. It helps us to maintain our value pricing, like the $1.50 hot dog and soda [combo]. I’ve been with the company 24 years, and it has always been $1.50.”
A Costco employee in 2018 told Popsugar that the company makes just $0.08 on every hot dog combo deal, reassuring us, profits aren’t the reasoning behind maintaining such an outrageous bargain. “By the way, if you raised [the price] to $1.75, it would not be that big of a deal. People would still buy [it]. But it’s the mindset that when you think of Costco, you think of the $1.50 hot dog [and soda],” concedes Jelinek. “We keep it at $1.50 and make enough money to get a fair return.”
Meanwhile, Sinegal doesn’t waver whatsoever when discussing the sacrosanct price point. In a 2009 interview with The Seattle Times, a reporter asked him, “If that price ever goes up, what will it mean?”
“That I’m dead,” he replied. “We’re known for that hot dog. That’s something you don’t mess with.”
Costco Chief Executive
Costco Wholesale Corporation promoted Craig Jelinek to the newly established Office of the President in 2010, a move that raised awareness of Jim Sinegal’s looming resignation plans. “Mr. Jelinek’s tenure and experience building Costco should allay fears that the cultural principles that have differentiated the Costco story will remain intact even after Mr. Sinegal’s eventual retirement,” J.P. Morgan analyst Charles Grom wrote in a note.
“I haven’t taken over. Let’s get that squared away,” Jelinek replied, whilst in chief executive purgatory, to one reporter’s premature question about the challenges of succeeding Sinegal. “There’s a lot that could happen before that could happen.” He also determined that Sinegal is irreplaceable, “if I happen to be blessed to take over for Jim Sinegal, I can only be Craig Jelinek.” Then he listed a few of his assets: knowing Costco’s culture, helping employees grow and succeed, and “putting on my pants one leg at a time like everyone else.”
After nearly three decades at the forefront of the wholesale retail industry, the company announced in 2011 that Sinegal would indeed be stepping down from his role as Costco’s CEO, to be replaced by none other than Craig Jelinek come year’s end. “Costco has a very strong culture and a deep bench of management talent,” Sinegal said in a press release. “I have total confidence in Craig’s ability to handle his new responsibilities.”
Performance By the Numbers
Around the time Jelinek took the proverbial helm, Costco was operating 592 warehouses across eight countries spread throughout the globe, generating total annual sales of $87 billion, and serving some 64 million cardholders. Considering he was heavily involved in every facet of the business leading up to these staggering results, it’s no surprise, however still remarkable, the overwhelming progress he has procured since the transfer of power.
For starters, let’s take a look at stock value, in January of 2012, Costco stock was trading at about $81 per share, and as of April 2021, a single share is worth an outstanding $374! According to the wholesale retailer’s 2020 annual report, they are now operating 803 locations in 12 countries, generating total annual sales of $163 billion, and serving over 100 million cardholders who renew their memberships – which haul in $3.54 billion in annual revenue – 90% of the time. Costco’s in-house Kirkland Signature brand was solely responsible for contributing $52 billion towards 2020’s total sales figure.
“The consumer pays for a membership and they make that decision based on what they figure the value of the membership is,” says Jelinek. “I think if you continue to bring value to the consumer and bring quality to the consumer, and know the consumer knows if the item doesn’t perform well they can bring it back [then] you build trust with the consumer, and I think it’s really that simple.”
Never wavering from his company’s financial commitment to their employees before shareholders, workers at Costco are guaranteed a minimum wage of $16 per hour and, on average, make $24 an hour – towering in comparison to America’s national minimum wage of $7.25. Jelinek derives from his own experience that paying higher wages won’t put somebody out of business, rather, how a person runs their business will, and at Costco, paying employees good wages while providing affordable benefits makes sense for their business model, it manifests a significant competitive advantage for them as well.
“We have never been a company that puts the shareholders on top. You have a responsibility to a shareholder – you do – but if you take the shareholder first, you are going to be in it for the short term. We had a difficult time [with Wall Street] with the wages that we paid [and] our refund policy, but we’ve gotten past that because have been able to grow the business,” he remarks. “Everything that we do at Costco is not to figure out how much we can make; it’s [about] how little we can make and still pay our bills because we want to sell more.”
In the interview below, Costco CEO Craig Jelinek and CNBC’s “Closing Bell” discuss business lessons learned during the covid pandemic and Jelinek’s forecast for the industry moving forward, post-pandemic.
If you enjoyed this story on the life of Costco CEO Craig Jelinek, be sure to check out our biography of Kroger CEO Rodney McMullen.