PepsiCo’s In The Club… Store, that is, Capturing Costco Food Service Account

The Brooklyn-born son of a deli owner, a former sandwich courier in New York’s Garment District, Alan Bubitz knows a deal on food when he sees it.

Now, as the vice president of food services for Costco, Bubitz’s bailiwick includes one of the most popular deals in the world: his company’s famous ¼ lb. hot dog and a 20 oz. Coke for $1.50 – plus tax, where applicable.

But the fountain nozzles, they are a changin’ — at least in the Costco food court.

Bubitz confirmed yesterday that all Costco foodservice locations will be switching from Coke to Pepsi products. The change, which will begin at the massive club retailer’s 400-plus U.S. locations in April, will be carried out globally over the next few years as vending contracts expire.

“It’s a big shift,” Bubitz said. “They’re the only vendor we’ve ever had for the majority of the business locations.”

Costco sign, soon to be outdated

The price on the $1.50 deal has been fixed for 27 years, since 1985, according to the Costco Connection, the company’s in-house magazine. But Coke’s red wall of Costco had begun to show cracks as early as three years ago when the company lost two of the eight U.S. Costco regions to its Purchase, NY-based competitor. Coke’s relationship with Costco hit rocky ground in 2009 when the company threw the soda company’s products out of its warehouse for about two months in a dispute over pricing, but that on-shelf conflict did nothing to affect the latest change in the food service arrangement, according to Bubitz.

“They did nothing wrong in the bidding process,” he said.

Perhaps not, but in order to preserve this iconic deal, Bubitz said, Costco had to switch iconic brands. It’s not the first time they’ve tinkered with the mix, however. In 2009, the company moved from serving Hebrew National hot dogs to its store-brand wiener, Kirkland Signature.

Despite a slight increase in size for the ¼ lb. dog, there was consumer pushback at the time – something that Bubitz says may also arrive as the Coke-to-Pepsi transition becomes pervasive.

“You’re not going to be able to please everybody,” he said. “It’s our job to preserve the integrity of the price point.”

So how much is the deal worth for Pepsi? Bubitz said he couldn’t discuss any of the financial implications, but he did discuss the volume of hot dog sales: worldwide, Costco’s food courts sell more than 100 million hot dogs a year. That’s more than four times the number sold at Major League ballparks in 2011, according to the National Hot Dog & Sausage Council.

Here’s why the number is significant: “They are always sold with a drink,” Bubitz said. “So you can do the math.”

Not including a la carte fountain drinks — $.59 for the same 20 oz. cup — ordered alongside $9.95 18-inch pizzas, and $1 churros – that’s more than 31 million gallons of new business for PepsiCo.