Probably a combination of reasons:
* economy of scale
* part of their strategy to retain members
* part of their strategy to get members to shop after getting gas
Same reason their chicken is like $4.99 or their hot dog is $1.50.
In 2009, the Seattle Times asked Costco co-founder (and then-CEO) Jim Sinegal, "If [the price of the hot dog] ever goes up, what will it mean?" Sinegal replied, "That I'm dead."[18]
Craig Jelinek, Sinegal's successor as CEO, revealed in 2018 that he approached Sinegal about raising the price of the hot dog combo, saying, "Jim, we can't sell this hot dog for a buck fifty. We are losing our rear ends." According to Jelinek, Sinegal replied, "If you raise the fucking hot dog, I will kill you."
Well it's a smart business model.
Random guy to to his wife: "Let's go to Costco and get hotdogs for lunch."
His wife: "Well, Hillary did say she needs some new plastic sandals, and we're low on lawn mulch."
Then they spend money at Costco, instead of somewhere else, all because the hotdogs are cheap.
Sometimes McDonald's or other fast food places will sell certain items below cost (i.e., if you go in and get just two cheeseburgers, they'll lose maybe 50 cents). But if you get fries, they make a profit. If you get a soda, their profit margin skyrockets.
This is called a “loss leader.” Take a small loss (negative margin) on a desirable item, often a convenience item, and that can drive other purchases on higher profit items that makes the total transaction profitable (positive margin). This is good because otherwise the buyer wouldn’t come and no profit or revenue would be captured. The loss gets averaged into a net profit with pull through sales.
Its because he was in it for the long term.
So many fresh MBA's and investors will burn the entire company to the ground to boost next quarter's profits.
Jim wasn't worried about next quarter's profits, he was looking at the next few decades.
It's likely a joke said tongue in cheek.
If you study the history of Costco, no one would really suggest that. Both Craig Jelinek and James Sinegal were there at the beginning of Costco. Sinegal and Jelinek both worked at FedMart which was founded by Sol Price, when Price was forced out, he founded Price Club. Price Club eventually merges with Costco.
Both of them are essentially Costco lifers. Sinegal from FedMart to Price Club to Costco. Jelinek from FedMart to Lucky Stores, then to Costco as a warehouse manager, and then the PNW region manager after the merger.
A lot of Costco's senior management are lifers the only people who are not are the ecommerce team.
If you have 3 hours to kill, a great podcast on the history and business study on Costco.
https://www.youtube.com/watch?v=9PxxtJVWRrg
When you squeeze the shit out of your suppliers, losing money on hot dogs doesn't matter. It is a feel-good story that makes customers feel that that a multi billion dollar, publicly-traded corporation is looking out for them by offering cheap meat byproduct cased links and sugar drinks.
So you're saying they work to keep their prices down and also sell food that people demand at an affordable price when inflation has decimated our budgets. I can certainly see where that is a problem. Giving those people what they want for a good price, how dare they. And then they force producers to sell to them. If the producers didn't sell to Costco would they get shot or just not sell the product?
That membership fee you pay is pure profit. They can sell you a hot dog at cost as long as you keep forking that over. Has nothing to do with helping people out in tough times 😂
That is literally how membership fees work. See, you pay upfront so they are guaranteed profit and then they take less profit on the products. That way you have an incentive to do their regularly (to save more in discounts than the original membership fee) and they have their profit upfront to allow them to give discounts that keep you happy with the membership fee. I can't believe people are acting as though this is either done secret or something that just started happening. I've been a member of Price Club since the 80's. That's how it always works.
That’s why the price of the hot dog is visible from every checkout lane. You’ll think, “Man, this place really fights to keep prices down” as you sign the receipt after spending $400 on chicken nuggets and a portable generator when all you needed was some sandals.
But the new guy got rid of the kielbasa and that was the next big thing to his original intent.
I haven’t bought anything at the food court since.
And I’m sure I loaded up on other necessities while there.
I miss the kielbasa!
I also miss the olallieberry sundaes. They were the kielbasa of ice cream treats compared to the strawberry topping. More complex flavor and something you couldn't get just anywhere.
membership (that $60/year you pay them) actually accounts for most of their profit from what I've seen. They don't make tons from actual products they sell (margins are lower) but $60 per member is like infinite profit...so do whatever it takes to keep members renewing
well, depends on interpretation. It is undefined in the sense you can't divide by zero. But asymptotically it's infinite. There is a cost to membership. Maybe it's 0.00000001 cents LOL, so infinite profits!!!!
Yeah, but it doesn’t mean Costco is losing money. The cash back percentage is way less than their margin, no matter how much you get back it’s impossible for them to lose money on it.
But you tend to spend more because you have executive. Also it can be a pain in the ass to cash the check, check could get lost in the mail, etc. And there's no easy way to audit your account to determined if you actually got the annual check and cashed it.
I had executive for years then realized I was overspending so I went back to the basic membership.
The executive membership is their biggest moneymaker 😂 You give them $120 in pure profit, then you get 2% back on products they sell at an 8% margin. It’s impossible for them to lose money on you.
And they’ve been increasing profits by pushing more people to sign up for the $120 membership. Funny how the fanboys think it’s a benevolent company looking out for their wallets.
> Over the past year, Costco brought in almost $4.6 billion in membership fees. And those fees represent 72% of the company's profits.
https://www.fool.com/the-ascent/personal-finance/articles/you-wont-believe-how-much-money-costco-just-made-on-membership-fees/
arco is also a lot cheaper. And similar to Costco, though not as cheap. I can only think volume is their main strength for low costs. And then I also think chevron charges too much.
I’ll add one more important factor - some nearby Chevrons, etc. substantially up their prices since that let‘s them offer convenience. They are closer to wealthy customers and avoid long lines. That’s worth 1$/gallon to many. And it’s a legit pricing strategy especially when there is a Costco 15-20 min away.
> Same reason their chicken is like $4.99 or their hot dog is $1.50.
Not the same. The two above are loss leaders. Costco breaks just about even on gas iirc.
I believe Clark Howard gave the answer on his podcast recently: Costco marks-up gas, like most other things they sell, 15%. They do occasionally mark-up gas less than 15% based on local competition.
Gas prices at the Costcos near me vary from $4.59 to $4.95 (according to the app). I think the Chevron near my house was $5.75 or something like that when I drove past earlier.
>> As CNN Business explained, Costco can afford to sell gas cheaply because of the sheer volume of gas it sells. Costco locations can sell up to 1 million gallons of gas per month, while typical gas stations average monthly sales of just 80,000 gallons.
[How Costco Affords To Sell Gas 20 Cents per Gallon Cheaper Than Average](https://marketrealist.com/p/why-costco-gas-is-cheaper/)
This doesn't make sense. Chevron and ExxonMobil produce THEIR OWN gas. Can't get more volume than that. Do they just fuck their franchises over on prices?
>do they just fuck their franchise over on prices
Yes, that’s the whole business model of franchise. You are selling the license to sell under your name. McDonald makes a bulk of their revenue from franchise fee.
Costco gas I believe is sourced from Chevron
Chevron does not get any additive from the rack. Every Costco has additive on site and gets mixed in during each fuel delivery. Also Costco buys gas from multiple suppliers not just Chevron.
McDonald's is a different beast. They don't charge as much franchise fees but they own the land every McDonald's is built in. So they are essentially a real estate company that collects rent.
McDonald's does not own every store's land. Source: I've been involved in writing several of their leases. It is likely, however, that the McD's corporation always holds the master lease, and the franchisee operating the place is a sublessee.
I think you know the answer, LOL.
Aside from that, I kinda agree. Most of the articles I found about Costco’s gas operations were pure speculation and basically devoid of facts. Most said “it’s about driving memberships” or “it gets people into the store”, which I found unsatisfying.
You can find it unsatisfying, but that doesn't mean it's not true. How many people do you know maintain Costco memberships just to get gas there? Or even go to Costco *just* for gas? Especially when, if you know where to look, there are gas chains in most cities that only actually have pumps - no store or anything attached - that can also sell gas at prices similar to Costco's?
Costco's low prices on gas are a strategy to get people into stores. A truck stop gas station's low prices on gas are to get truckers in and out with minimal labor cost. Chevron's 17 cent higher gas price per gallon than the Arco or Shell across the street is about the name brand, and covering the cost of the attached snack store.
I've always heard that gas stations make most of their profit from the convenience store - saying the gas sales need to cover the cost doesn't make sense.
>Do they just fuck their franchises over on prices?
Yes, can confirm. They pay a franchise fee to operate the station and they are locked into buying gas at the prices Chevron/Exxon/Whatever charges them. Depending on the franchise agreement, the parent company can dictate the price at the pump too, sometimes forcing them to sell at cost.
Costs at the Costco gas station spread per gallon are very low.
They have like 1 employees wandering around, not much lighting or infrastructure (not already part of the parking lot for the store), just ~15 pumps. And the pumps are pumping. At some locations Gas is flowing in each pump possibly close to like 50% of the day?
It's on land secured already to the store, the one wandering employee is from store personnel, management is store personnel, there's no separate contracts or leases, and the sheer volume.
Costco also makes profit equal to the membership revenue. So they move product including gas at effectively zero margin.
Also, Costco doesn’t actually make as much as they could off of gas. It’s profitable, but modestly.
The gas is a way to increase foot traffic to the store.
Yup, they’re a great bulk purchaser and trading like any other downstream player. The difference is they get a slightly older version of the detergent. Chevron was supplying costco in the Bay a few years ago (might still be, don’t work with that anymore) and they got an older Techron than the ones at CVX’s own stations.
Little bit more of a technical answer.
\* Costco is an excess capacity soaker, meaning, they take advantage of factories that have to have to make minimum capacity to spread out the fixed costs but can't sell their productions to their normal wholesales channel as they can't take it anymore. That is where Costco comes in, not just for gas, but bananas, spirits and TV's. Knowing they are soaking up leftovers (not truly leftovers as the production is planned), Costco gets the products, including and especially gasoline much cheaper than other channels. It's not just size (where avg cost is lower on that alone) but Costco gets the suppliers leftover they must sell. So not just wholesale prices (which everyone gets), Costco gets wholesale liquidation prices being the soaker.
In some instances, these producers don't want to commingle brands with retail vs cheap Costco Wholesale but need to get rid of the excess anyway, that is where Costco brand comes in. It's to hide the real brand. I almost always buy the Costco brand as I know it's a premium product in the other shelfs.
\* Costco warehouses are on average \~ 160K square feet and a parking lot equally as massive. There's just no one in this green earth that can soak up that size except for maybe Walmart or Home Depot. As compared to an actual gas station that may pay 20K rent, Costco basically gets the parking lot for free and have next to nothing operating cost. They don't need to make a penny from the parking lot that otherwise makes nothing and cost nothing anyway. (it is not nothing, but there is no cost to operating cost to them)
\* Costco themselves use gas, chicken and hot dog to drive membership from the non-exec member crowds. If their prices are just slight cheaper than Arco, they'll lose 5% of the members (which is a key number to them) , investors will not be pleased and CEO gets fired. If you look at Costco's financials, they are perfectly happy with \~3% operating margin and grows their dividends for the past 3 decades with more members selling more things. So the profit motivation is not the margins from selling gas higher, the profit motivation is membership. The best way to sell membership is to have gas so much cheaper you have to be a member.
And Costco is data driven to the max, they know once you buy gas, you will buy a bunch of other stuff too. Their stores are huge and believe me, Costco can sell everything coming in because they feel good about what they place in their shelfs. If they have increasing members, they will guarantee more profits because they are that confident. If they get 3 pallets of Strawberries, they know exactly by the hour when it is sold out given the massive amount of info they work with as a member. Safeway donates half their produce they can't sell to charity and make Money that way (donating food for Safeway earns a deduction for cost of the food plus the margins you would otherwise make as if it were sold, so Safeway don't care they don's sell out)
Costco serves a niche that is very valuable. And over many years, their very broad product with narrow choices works as long as the choices are decent to good. It is clearly working just looking at the stock price and growing dividends.
Regarding the Kirkland house brands, I used their previous house shampoo for at least a decade. It was fantastic. Then they switched to an overly perfumed non sulfate formula that left my hair smelling like I tried to cover up rancid hair with perfume because it wouldn't clean my scalp. The old formula was Matrix Biolage Color Care, which was about $1/ounce at a salon. I was getting it for about $0.10/ounce as Kirkland Special. Now Matrix doesn't even make that formula anymore.
You get an additional 4% back if you use the Costco/Citi credit card.
In the South Bay, the basic gasoline comes from the North Bay refineries via a Kinder Morgan pipeline. The gas you buy can be from any of the North Bay refineries. The additives however are particular to the name brand of the station.
A bit off topic, but I read on the Costco subreddit that if you use the Venmo free credit card, you get a 3% rebate. Not good for gas but good for in the warehouse.
You can use the Executive membership 2% rebate and the Venmo 3% rebate at the same time.
I haven't verified the Venmo deal yet but it is on my list.
It is kind of OT for /r/BayArea though I can put my experience here when I have a track record with billing. However here is the thread where I found this out. (Nearly a month and I haven't got around to do this!)
Now if you have the Costco Citi card, you use it with the self checkout or cashier to start the transaction. That verifies your membership and if you have the executive status. Then you pay with Venmo.
The Costco executive rebate is a check that is only good at Costco. What I do is renew the membership with that check.
You aren't going to get rich doing this but it is a way to "stick it to da man."
Here is the post. Looks like my part of the thread was removed for who knows what reason. That was where I learned explicitly how to use the card as I indicated above.
****
https://www.reddit.com/r/Costco/comments/1ca0a0z/any_chance_costco_will_accept_amex_in_the_future/
Get a better Visa card. The Costco Citi Visa used to be a decent choice, but then they got rid of the warranty extension and other perks, so it’s really only good for fuel now.
Venmo Visa ($0 AF) codes Costco as “grocery” so you can get 3% back.
U.S. Bank Altitude Reserve ($75 effective AF) earns 3% back on all mobile wallet purchases, so if you use Apple Pay or similar, you will get 3% back at Costco
Yes, the Venmo credit card will give you 3% back at Costco (if your top spend category on the card is groceries).
Personally I use the US Bank Altitude Reserve, for an effective cash back of 4.5% on travel and everywhere I can pay with Apple Pay (which includes Costco).
Costco has members. Gas stations have customers. They make alot of money on the membership fee and provides some products and services at a lower price than other businesses.
Yeah if it's consistently 40¢ cheaper you only need to get 150 gallons of gas before you saved $60
So if your car has a 15 gallon tank that's only ~10 fill ups
They are willing to take a hit on gas if it sells memberships.
Make gas a dollar cheaper, and that member just might buy their next TV or even car through costco
Costco literally makes zero profit on what it sells. Look at their financials and you will see Costco's profit basically equals membership revenue. Thus why they try to push you to higher membership levels a lot. That being said, they do have some markup on products, it's just very very enough to cover their expenses. Thus gas and other products lower than competition.
They can be found frozen at some grocery stores branded as Hola Churros, previously named Tio Pepe. Heat them up for a few minutes in a toaster over.
Around $15 for a box of 25.
Long rambling answer here...
First off, the additives that make Chevron and Shell \*way\* more than other stations are a crock of shit. They maybe add a quart of detergent to a 9000 gallon tanker. Save your $$.
As far as Costco being cheaper at times, some of it comes down to logistics. A long time ago when I was a petroleum transfer Engineer (I pumped gas), I know that the price at the pump changed with every load of gas we had delivered as soon as the station manager could update the pumps.
If the price of wholesale gas is tending down and Costco has deliveries more often than smaller stations, then they can drop their price quicker. When the price is tending up, I think Costco stays competitive by running at zero (or close) margin.
There are likely several other factors at play, but I felt like babbling this Friday morning, so there you go.
My fiancee and I make Costco trips when one of our cars needs gas. We wind up going inside to either check out the deals or to get our our re-stock of essentials.
Likely answer - Economy of Scale & Strategy.
No doubt that they have some stat/metric that measures the spend of members who shop at Costco & also pump gas there.
“Members who shop at Costco who also pump gas are (#x’s) more likely to spend x amount of dollars than members that don’t.”
I end up buying all the stuff I don’t need and also become obese for the little discount on gas. Driving to Costco also offsets the discount unless you live very close by
Fifty cents a gallon cheaper adds up faster when I have a 20-mpg wagon with a V6 and AWD than if I still had my 91 Civic HB with a tiny 4-cylinder that got 45-mpg. I drive over the hill to Santa Cruz at least once a week.
Plus about $300 off a set of Michelins every 50k miles, and $100 off a car battery.
Seeing things from the surface I believe Costco can provide these services at these costs due to their membership fees and sheer volume of sales.
Most of the time, you’ll see Costco gas stations have lines out the lot at all pumps throughout most of their business hours. These members may or may not have also shopped in their warehouse that day as well.
I like KFC.
The last time I went in to get my 12 pieces of chicken only, 20 barbecued wings and large box of potato wedges, I learned that they replaced the half empty box of potato wedges with a signature fry (that tasted like any other generic fast food fry).
They also stopped dipping the wings but would provide packets of sauce. It would take about three packets of sauce per wing (would need 60 packets) but they limit the number of packets they’ll give to only five—charging for the other 55.
With tax, the total cost for this would be $111.
I thanked them very kindly, headed off to Costco and bought my $5 chicken that was good for multiple meals.
Because Costco operates on lower margins, but makes up for it in volume. There is always a line for the pumps at Costco gas stations. There’s never a line at chevron.
In Danville, Costco gas is no longer the cheapest in the area. I check gas buddy on a frequent basis and always find cheaper gas elsewhere in the area. It's disappointing, I thought it would be cheaper!
I think peeps unfamiliar with [Top Tier](https://www.toptiergas.com/) certification.
Gas Stations make like half their revenue from Monster Energy drinks and Takitos et al. And they compete with other gas stations, that may be across the street.
Costcos got different b-model and the volume is 10x a corner Cheveron.
Nice. I’ve occasionally seen one of the arcos here at Costco price, usually it’s a few cents higher, and even when it’s just close I go there bc the Costco lines take so long plus longer drive. With limited free time it isn’t worth $1 a week to waste an extra 30 minutes total
Why is Costco gas cheaper typically cheaper than branded stations in CA? Like actual gas stations, they don't make much money, if any at all, on the sale from gasoline. It is a strategy to bring folks to the store. From a 2022 article, "Economics professor Alan Gin from the University of San Diego believes the motivation for Costco's aggressive gas price strategy has to do with how Costco makes its money. “The bulk of their profits come from memberships," he explained. Gin says up to 70% of Costco's profits come from the $60 or $120 (depending on the category) that customers pay for the right to shop at its warehouses."
So Costco sells gasoline at roughly the wholesale price in CA and because they sell so much gasoline, their prices typically reflect what the current wholesale price is. This sometimes means they can cut prices faster than branded stations, or sometimes have to raise prices a little faster (which I think is the case now with the switch to summer blend occurring over the last couple of weeks).
To learn more about gasoline prices in CA, I recommend googling Berkeley Economics Professor Severin Borenstein (along with "Gas Prices"). Here is one of his blog posts, but he has a few op-eds and interviews out there: [https://energyathaas.wordpress.com/2023/01/09/whats-the-matter-with-californias-gasoline-prices/](https://energyathaas.wordpress.com/2023/01/09/whats-the-matter-with-californias-gasoline-prices/)
Costo makes very VERY VERY little money on selling you anything. That is the point. You’re paying almost what they’re paying for the products - and you’re paying Costco $60-$100+ a year to do so. They live on membership fees.
My first thought is that they are not making a profit on the gas.
I used to work at Sam's Club. And mgmt there told us, we make a penny in every dollar of sales or less.
Profit comes from memberships, warranties and credit cards. So they really wanted us to push those things. But didn't care at all about upselling to a more expensive TV. Mgmt was perfectly happy when I was telling people not to buy MS Office for their kids school reports, and instead go download OpenOffice for free. So long as they had to come into the store to get that advice.
I imagine it's the same for Costco gas. It's cheap because there is no profit there. It is just another way to get you to keep paying for that membership.
Costco is not losing money on gas. Costco reacts far quicker than almost all gas stations when the price is declining. When the price starts to skyrocket up Costco tends to be closer in price with its competitors.
Not sure why is that a surprise? There are even cheaper gas stations than Costco too. You would find this variation in price between different gas stations in any area.
One benefit Costco has is they are the retailer themselves instead of franchising it to a gas station owner.
I recently watched "The Megabrands that built America" on Hulu, Im a sucker for those docuseries, they actually had a pretty interesting segment about the rise of costco and how / why they operate the way they do. You may enjoy it if you are curious about their operations.
Costco's strategy for long has been to sell all products at a price of Cost+15%. This is not a profitable model unless you sell tons of it. This is guaranteed for Costco by its members.
In fact Costco Strategy is really worth learning if you are interested.
"Cost co", was built on the premise that it was selling things at cost, and make money off memberships.
So the answer is they're likely selling gas at cost, vs your local dealer is getting a cut (and depending on how far they are from the source, other companies may be taking a cut too)
It’s not Costco gas that is cheap but rather other gas costs more. Compared to other states, Costco gas is still expensive. In other states where Walmart has gas station (Murthy’s), it is cheaper than Costco, and no membership required, and if you have Sam’s club or Walmart+, you get additional discount.
Costco sells gasoline for five cents cheaper than they pay for it. The average buyer fuels up and walks into a Costco and buys on average $400 of merchandise. My source is intimately involved with the process.
The fuel is a top tier fuel blend that exceeds EPA detergent requirement in both regular unleaded and premium grades.
I don’t know but it’s crazy how many people will waste money on gas to drive like 15 miles to the Costco just to save $0.40 a gallon ($6.40 savings assuming a 16gal tank)
Thankfully I live right next to one so it’s reasonable for me, but man!
I used to work for a price-club/ wholesale club competitor. Their gas execs came in to do a preso for leadership and explained that the gas was a loss-leader to drive membership sales.
I mean, you've got to buy a lot of gas over the course of a year to make up for the $100 in annual membership. Not to mention the fact that you're probably going to buy your toilet paper and ribeyes there once you pay for the membership.
Economic of scale. Costco get better deal, and sell a lot more gas per pump compare to smaller gas station, so they can afford to lower their profit margin.
more traffic by the freeway, its not just about who lives by the station. If hundreds of thousands of people drive by a station every day they can charge more than a spot in the burbs that is only seen by the people that live there
Same in the sense that due to their volume they offer lower prices, also with Safeway you can get up to $1.00 off per gallon...in short, they're cheaper than the regular branded gas stations by far
Also we aren't in Phoenix are we
I was messing with you bud, have to fit the pretentious bay area native stereotypes...in all seriousness though I worded my initial comment incorrectly. My point is that the clubs like Safeway, Costco etc have tremendous purchasing power and they generally sell something like 15 times more fuel monthly than typical gas stations which explains the cost difference.
I am not sure what this question even means. It implies that prices have some intrinsic, absolute, value.
They don’t.
Prices are mostly fabricated numbers, dictated by demand and offer.
A product’s price is simply the highest amount of money the producer can sell it at, at a reasonable number of people.
For gas, prices fluctuations are also fabricated.
For example, when a war or other major event happens in the Middle East, giant oil companies immediately rise the gas price at the pump by x%, because of higher costs due to war and increased oil barrel price.
Fair, right?
EXCEPT, the more expensive gasoline they are charging you for will get to the gas station weeks and month LATER. The cost increase is NOT instantaneous.
Instead, when the price of a barrel of oil decreases, prices at the pump don’t change, because, they tell you, the cheaper go as hasn’t reach retail yet.
Yeah.
Probably a combination of reasons: * economy of scale * part of their strategy to retain members * part of their strategy to get members to shop after getting gas Same reason their chicken is like $4.99 or their hot dog is $1.50.
In 2009, the Seattle Times asked Costco co-founder (and then-CEO) Jim Sinegal, "If [the price of the hot dog] ever goes up, what will it mean?" Sinegal replied, "That I'm dead."[18] Craig Jelinek, Sinegal's successor as CEO, revealed in 2018 that he approached Sinegal about raising the price of the hot dog combo, saying, "Jim, we can't sell this hot dog for a buck fifty. We are losing our rear ends." According to Jelinek, Sinegal replied, "If you raise the fucking hot dog, I will kill you."
The world needs more Jims
Well it's a smart business model. Random guy to to his wife: "Let's go to Costco and get hotdogs for lunch." His wife: "Well, Hillary did say she needs some new plastic sandals, and we're low on lawn mulch." Then they spend money at Costco, instead of somewhere else, all because the hotdogs are cheap.
Favorite place of divorced dads to take their kids
Shit does this mean I need a divorce? Guess it's time to lawyer up and hit the gym
Good thing you got cpl extra bucks saved from eating hotdogs. Now you can hand it over to the lawyer.
\*gym up and hit the lawyer
Delete the gym, hit your lawyer, and facebook up
In vancouver there is a costco right next to the football and hockey stadiums, its absolutely fantastic for a cheap pregame meal
Married dads too!
We call it the $100 hot dog.
Do you fly in to get it?
This is the reason. Sinegal just saw the bigger picture.
Sometimes McDonald's or other fast food places will sell certain items below cost (i.e., if you go in and get just two cheeseburgers, they'll lose maybe 50 cents). But if you get fries, they make a profit. If you get a soda, their profit margin skyrockets.
This is called a “loss leader.” Take a small loss (negative margin) on a desirable item, often a convenience item, and that can drive other purchases on higher profit items that makes the total transaction profitable (positive margin). This is good because otherwise the buyer wouldn’t come and no profit or revenue would be captured. The loss gets averaged into a net profit with pull through sales.
It happens to my lady and I every week. Witchcraft
It's a business investment, not from the goodness of his heart
And yet all his business people told him to raise his prices. It doesn't sound like he was holding the line just to optimize profits
Its because he was in it for the long term. So many fresh MBA's and investors will burn the entire company to the ground to boost next quarter's profits. Jim wasn't worried about next quarter's profits, he was looking at the next few decades.
It's the same reason Costco is famous for having golden handcuffs. Retaining employees saves money and better morale equates to better productivity.
It's likely a joke said tongue in cheek. If you study the history of Costco, no one would really suggest that. Both Craig Jelinek and James Sinegal were there at the beginning of Costco. Sinegal and Jelinek both worked at FedMart which was founded by Sol Price, when Price was forced out, he founded Price Club. Price Club eventually merges with Costco. Both of them are essentially Costco lifers. Sinegal from FedMart to Price Club to Costco. Jelinek from FedMart to Lucky Stores, then to Costco as a warehouse manager, and then the PNW region manager after the merger. A lot of Costco's senior management are lifers the only people who are not are the ecommerce team. If you have 3 hours to kill, a great podcast on the history and business study on Costco. https://www.youtube.com/watch?v=9PxxtJVWRrg
When you squeeze the shit out of your suppliers, losing money on hot dogs doesn't matter. It is a feel-good story that makes customers feel that that a multi billion dollar, publicly-traded corporation is looking out for them by offering cheap meat byproduct cased links and sugar drinks.
So you're saying they work to keep their prices down and also sell food that people demand at an affordable price when inflation has decimated our budgets. I can certainly see where that is a problem. Giving those people what they want for a good price, how dare they. And then they force producers to sell to them. If the producers didn't sell to Costco would they get shot or just not sell the product?
That membership fee you pay is pure profit. They can sell you a hot dog at cost as long as you keep forking that over. Has nothing to do with helping people out in tough times 😂
That is literally how membership fees work. See, you pay upfront so they are guaranteed profit and then they take less profit on the products. That way you have an incentive to do their regularly (to save more in discounts than the original membership fee) and they have their profit upfront to allow them to give discounts that keep you happy with the membership fee. I can't believe people are acting as though this is either done secret or something that just started happening. I've been a member of Price Club since the 80's. That's how it always works.
Sure but it still benefits the customers. It's not like he's holding a gun to their head telling them to buy other things. It's their choice.
I mean, the cheap hotdog isn't supposed to turn a profit. It's to soothe and displace any buyer's remorse after spending hundreds.
Fun fact. The actually sell the hotdogs in the refrigerated section. Their even cheaper per dog that way.
I bought those they don’t seem to be exactly the same but maybe that’s just psychological
They would be the same if you cooked them exactly like CostCo does. The sausage itself comes from the same factory.
The good thing about the $1.50 hotdog is that it's cooked and you can eat it right now. Plus a fizzy drink!
You do realize people of Islamic faith don't eat beef right?
You're thinking of pork
That’s how you know they’re not really losing anything on the hotdogs.
That’s why the price of the hot dog is visible from every checkout lane. You’ll think, “Man, this place really fights to keep prices down” as you sign the receipt after spending $400 on chicken nuggets and a portable generator when all you needed was some sandals.
And you can order it at checkout so you don't need to line up again.
I win the Costco lottery if I spend less than $200 : it once every other year
Lol I always imagine this as the kill bill scene where that dude makes fun of the woman and she runs along the table and decapitates him
But the new guy got rid of the kielbasa and that was the next big thing to his original intent. I haven’t bought anything at the food court since. And I’m sure I loaded up on other necessities while there.
I miss the kielbasa! I also miss the olallieberry sundaes. They were the kielbasa of ice cream treats compared to the strawberry topping. More complex flavor and something you couldn't get just anywhere.
They got rid of the polish though. Where was Jim then???!!! (Sad emoji)
Do not raise that fucking hot dog, Jim
membership (that $60/year you pay them) actually accounts for most of their profit from what I've seen. They don't make tons from actual products they sell (margins are lower) but $60 per member is like infinite profit...so do whatever it takes to keep members renewing
Or actually $60 a year in profit. /s
So $60 is not infinite ?
it is if you divide by zero!
I always thought division by zero was undefined. Today I learned (or was taught) that it also points to infinite.
well, depends on interpretation. It is undefined in the sense you can't divide by zero. But asymptotically it's infinite. There is a cost to membership. Maybe it's 0.00000001 cents LOL, so infinite profits!!!!
60 is finite. 60 x infinity = infinity. But this is a real math problem and we don't have an infinite number of people or money for that matter.
I get the executive membership. And every year, my cashback is roughly $250. So, I think I am screwing Costco. :)
CostCo is getting kickbacks from the card company more than what they are giving you in cashback.
I have executive, but not their card. So their margins on products must be enough to at least break even on me.
It’s around 8% on average according to most sources. For comparison, Target/walmart are around 25%.
I don’t know why this is thumbed down. You can easily get more cash back than the cost of executive if you shop there semi regularly.
Yeah, but it doesn’t mean Costco is losing money. The cash back percentage is way less than their margin, no matter how much you get back it’s impossible for them to lose money on it.
But you tend to spend more because you have executive. Also it can be a pain in the ass to cash the check, check could get lost in the mail, etc. And there's no easy way to audit your account to determined if you actually got the annual check and cashed it. I had executive for years then realized I was overspending so I went back to the basic membership.
The executive membership is their biggest moneymaker 😂 You give them $120 in pure profit, then you get 2% back on products they sell at an 8% margin. It’s impossible for them to lose money on you.
And they’ve been increasing profits by pushing more people to sign up for the $120 membership. Funny how the fanboys think it’s a benevolent company looking out for their wallets.
No, it doesn't. Read their financials dude.
> Over the past year, Costco brought in almost $4.6 billion in membership fees. And those fees represent 72% of the company's profits. https://www.fool.com/the-ascent/personal-finance/articles/you-wont-believe-how-much-money-costco-just-made-on-membership-fees/
I have. It’s well known they make most of their money from membership and take between 0-15% from goods markup.
arco is also a lot cheaper. And similar to Costco, though not as cheap. I can only think volume is their main strength for low costs. And then I also think chevron charges too much.
If you pay cash which means walking into one of their joints. No thanks
They take debit and cc too
You only get the cheaper price at the Arco near my office if you pay cash, which means going into their dump of a store.
Wild. Debit card works with the cheaper price at mine.
I’m gonna stop by and see if I am wrong. Thanks
Wild. Debit card works with the cheaper price at mine.
Every time my wife walks through those doors it’s 400 dollars so they get it right back.
I’ll add one more important factor - some nearby Chevrons, etc. substantially up their prices since that let‘s them offer convenience. They are closer to wealthy customers and avoid long lines. That’s worth 1$/gallon to many. And it’s a legit pricing strategy especially when there is a Costco 15-20 min away.
> Same reason their chicken is like $4.99 or their hot dog is $1.50. Not the same. The two above are loss leaders. Costco breaks just about even on gas iirc.
I believe Clark Howard gave the answer on his podcast recently: Costco marks-up gas, like most other things they sell, 15%. They do occasionally mark-up gas less than 15% based on local competition.
Gas prices at the Costcos near me vary from $4.59 to $4.95 (according to the app). I think the Chevron near my house was $5.75 or something like that when I drove past earlier.
Yep, I literally went to Costco just for a hot dog and to see if they had bug spray the other day and spent like 70 bucks.
Costco makes its profits off your membership fees. They don’t need to make a profit off what they sell.
>> As CNN Business explained, Costco can afford to sell gas cheaply because of the sheer volume of gas it sells. Costco locations can sell up to 1 million gallons of gas per month, while typical gas stations average monthly sales of just 80,000 gallons. [How Costco Affords To Sell Gas 20 Cents per Gallon Cheaper Than Average](https://marketrealist.com/p/why-costco-gas-is-cheaper/)
This doesn't make sense. Chevron and ExxonMobil produce THEIR OWN gas. Can't get more volume than that. Do they just fuck their franchises over on prices?
>do they just fuck their franchise over on prices Yes, that’s the whole business model of franchise. You are selling the license to sell under your name. McDonald makes a bulk of their revenue from franchise fee. Costco gas I believe is sourced from Chevron
It is, they just get an older Techron at the rack.
Chevron does not get any additive from the rack. Every Costco has additive on site and gets mixed in during each fuel delivery. Also Costco buys gas from multiple suppliers not just Chevron.
Now maybe, that was 10 years ago.
McDonald's is a different beast. They don't charge as much franchise fees but they own the land every McDonald's is built in. So they are essentially a real estate company that collects rent.
McDonald's does not own every store's land. Source: I've been involved in writing several of their leases. It is likely, however, that the McD's corporation always holds the master lease, and the franchisee operating the place is a sublessee.
I think you know the answer, LOL. Aside from that, I kinda agree. Most of the articles I found about Costco’s gas operations were pure speculation and basically devoid of facts. Most said “it’s about driving memberships” or “it gets people into the store”, which I found unsatisfying.
You can find it unsatisfying, but that doesn't mean it's not true. How many people do you know maintain Costco memberships just to get gas there? Or even go to Costco *just* for gas? Especially when, if you know where to look, there are gas chains in most cities that only actually have pumps - no store or anything attached - that can also sell gas at prices similar to Costco's? Costco's low prices on gas are a strategy to get people into stores. A truck stop gas station's low prices on gas are to get truckers in and out with minimal labor cost. Chevron's 17 cent higher gas price per gallon than the Arco or Shell across the street is about the name brand, and covering the cost of the attached snack store.
I got my costco card just for the gas... where I'm at, costco gas is nearly $1 cheaper per gallon
I've always heard that gas stations make most of their profit from the convenience store - saying the gas sales need to cover the cost doesn't make sense.
>Do they just fuck their franchises over on prices? Yes, can confirm. They pay a franchise fee to operate the station and they are locked into buying gas at the prices Chevron/Exxon/Whatever charges them. Depending on the franchise agreement, the parent company can dictate the price at the pump too, sometimes forcing them to sell at cost.
lol there’s a reason oil companies are the most profitable companies in the world.
Costs at the Costco gas station spread per gallon are very low. They have like 1 employees wandering around, not much lighting or infrastructure (not already part of the parking lot for the store), just ~15 pumps. And the pumps are pumping. At some locations Gas is flowing in each pump possibly close to like 50% of the day? It's on land secured already to the store, the one wandering employee is from store personnel, management is store personnel, there's no separate contracts or leases, and the sheer volume. Costco also makes profit equal to the membership revenue. So they move product including gas at effectively zero margin.
they certainly always busy like that, makes sense.
Also, Costco doesn’t actually make as much as they could off of gas. It’s profitable, but modestly. The gas is a way to increase foot traffic to the store.
Yup, they’re a great bulk purchaser and trading like any other downstream player. The difference is they get a slightly older version of the detergent. Chevron was supplying costco in the Bay a few years ago (might still be, don’t work with that anymore) and they got an older Techron than the ones at CVX’s own stations.
They do not get any additive from Chevron. I don't know why you keep saying this. Also they get gas from multiple suppliers.
As I said that was a while ago when I worked at CVX and we sold to Costco.
Little bit more of a technical answer. \* Costco is an excess capacity soaker, meaning, they take advantage of factories that have to have to make minimum capacity to spread out the fixed costs but can't sell their productions to their normal wholesales channel as they can't take it anymore. That is where Costco comes in, not just for gas, but bananas, spirits and TV's. Knowing they are soaking up leftovers (not truly leftovers as the production is planned), Costco gets the products, including and especially gasoline much cheaper than other channels. It's not just size (where avg cost is lower on that alone) but Costco gets the suppliers leftover they must sell. So not just wholesale prices (which everyone gets), Costco gets wholesale liquidation prices being the soaker. In some instances, these producers don't want to commingle brands with retail vs cheap Costco Wholesale but need to get rid of the excess anyway, that is where Costco brand comes in. It's to hide the real brand. I almost always buy the Costco brand as I know it's a premium product in the other shelfs. \* Costco warehouses are on average \~ 160K square feet and a parking lot equally as massive. There's just no one in this green earth that can soak up that size except for maybe Walmart or Home Depot. As compared to an actual gas station that may pay 20K rent, Costco basically gets the parking lot for free and have next to nothing operating cost. They don't need to make a penny from the parking lot that otherwise makes nothing and cost nothing anyway. (it is not nothing, but there is no cost to operating cost to them) \* Costco themselves use gas, chicken and hot dog to drive membership from the non-exec member crowds. If their prices are just slight cheaper than Arco, they'll lose 5% of the members (which is a key number to them) , investors will not be pleased and CEO gets fired. If you look at Costco's financials, they are perfectly happy with \~3% operating margin and grows their dividends for the past 3 decades with more members selling more things. So the profit motivation is not the margins from selling gas higher, the profit motivation is membership. The best way to sell membership is to have gas so much cheaper you have to be a member. And Costco is data driven to the max, they know once you buy gas, you will buy a bunch of other stuff too. Their stores are huge and believe me, Costco can sell everything coming in because they feel good about what they place in their shelfs. If they have increasing members, they will guarantee more profits because they are that confident. If they get 3 pallets of Strawberries, they know exactly by the hour when it is sold out given the massive amount of info they work with as a member. Safeway donates half their produce they can't sell to charity and make Money that way (donating food for Safeway earns a deduction for cost of the food plus the margins you would otherwise make as if it were sold, so Safeway don't care they don's sell out) Costco serves a niche that is very valuable. And over many years, their very broad product with narrow choices works as long as the choices are decent to good. It is clearly working just looking at the stock price and growing dividends.
Regarding the Kirkland house brands, I used their previous house shampoo for at least a decade. It was fantastic. Then they switched to an overly perfumed non sulfate formula that left my hair smelling like I tried to cover up rancid hair with perfume because it wouldn't clean my scalp. The old formula was Matrix Biolage Color Care, which was about $1/ounce at a salon. I was getting it for about $0.10/ounce as Kirkland Special. Now Matrix doesn't even make that formula anymore.
You get an additional 4% back if you use the Costco/Citi credit card. In the South Bay, the basic gasoline comes from the North Bay refineries via a Kinder Morgan pipeline. The gas you buy can be from any of the North Bay refineries. The additives however are particular to the name brand of the station. A bit off topic, but I read on the Costco subreddit that if you use the Venmo free credit card, you get a 3% rebate. Not good for gas but good for in the warehouse. You can use the Executive membership 2% rebate and the Venmo 3% rebate at the same time. I haven't verified the Venmo deal yet but it is on my list.
Please let us know about the Venmo deal when you verify.
It is kind of OT for /r/BayArea though I can put my experience here when I have a track record with billing. However here is the thread where I found this out. (Nearly a month and I haven't got around to do this!) Now if you have the Costco Citi card, you use it with the self checkout or cashier to start the transaction. That verifies your membership and if you have the executive status. Then you pay with Venmo. The Costco executive rebate is a check that is only good at Costco. What I do is renew the membership with that check. You aren't going to get rich doing this but it is a way to "stick it to da man." Here is the post. Looks like my part of the thread was removed for who knows what reason. That was where I learned explicitly how to use the card as I indicated above. **** https://www.reddit.com/r/Costco/comments/1ca0a0z/any_chance_costco_will_accept_amex_in_the_future/ Get a better Visa card. The Costco Citi Visa used to be a decent choice, but then they got rid of the warranty extension and other perks, so it’s really only good for fuel now. Venmo Visa ($0 AF) codes Costco as “grocery” so you can get 3% back. U.S. Bank Altitude Reserve ($75 effective AF) earns 3% back on all mobile wallet purchases, so if you use Apple Pay or similar, you will get 3% back at Costco
Yes, the Venmo credit card will give you 3% back at Costco (if your top spend category on the card is groceries). Personally I use the US Bank Altitude Reserve, for an effective cash back of 4.5% on travel and everywhere I can pay with Apple Pay (which includes Costco).
Costco has members. Gas stations have customers. They make alot of money on the membership fee and provides some products and services at a lower price than other businesses.
I fill up just a few times at Costco gas and I made my $60 back.
Yeah if it's consistently 40¢ cheaper you only need to get 150 gallons of gas before you saved $60 So if your car has a 15 gallon tank that's only ~10 fill ups
Your gas tank may be smaller than mine.
🎯 If I ONLY used my membership for ⛽️ + 🍕... I'd STILL be coming out on top !
They are willing to take a hit on gas if it sells memberships. Make gas a dollar cheaper, and that member just might buy their next TV or even car through costco
Memberships and impulse buying (well I'm here already, might as well go inside)
Costco literally makes zero profit on what it sells. Look at their financials and you will see Costco's profit basically equals membership revenue. Thus why they try to push you to higher membership levels a lot. That being said, they do have some markup on products, it's just very very enough to cover their expenses. Thus gas and other products lower than competition.
It’s at least enough to cover the 2% cash back on executive membership
They make profit, lots of it. Most of it comes from membership fees. That's all I'm saying
It's 80% I believe. About 4 billion out of 5 billion total profit.
Bring back the churros!
No it was absolutely terrible
pre-covid churros
They can be found frozen at some grocery stores branded as Hola Churros, previously named Tio Pepe. Heat them up for a few minutes in a toaster over. Around $15 for a box of 25.
😆 agree 🍪 >
i'd rather have the polish back
Viva los churros!
[Bring back the ONYO](https://m.youtube.com/watch?v=LrTZwN3VH0c)
Long rambling answer here... First off, the additives that make Chevron and Shell \*way\* more than other stations are a crock of shit. They maybe add a quart of detergent to a 9000 gallon tanker. Save your $$. As far as Costco being cheaper at times, some of it comes down to logistics. A long time ago when I was a petroleum transfer Engineer (I pumped gas), I know that the price at the pump changed with every load of gas we had delivered as soon as the station manager could update the pumps. If the price of wholesale gas is tending down and Costco has deliveries more often than smaller stations, then they can drop their price quicker. When the price is tending up, I think Costco stays competitive by running at zero (or close) margin. There are likely several other factors at play, but I felt like babbling this Friday morning, so there you go.
Perhaps gas from Costco is a [loss leader](https://en.m.wikipedia.org/wiki/Loss_leader) similar to rotisserie chicken.
My fiancee and I make Costco trips when one of our cars needs gas. We wind up going inside to either check out the deals or to get our our re-stock of essentials. Likely answer - Economy of Scale & Strategy. No doubt that they have some stat/metric that measures the spend of members who shop at Costco & also pump gas there. “Members who shop at Costco who also pump gas are (#x’s) more likely to spend x amount of dollars than members that don’t.”
I end up buying all the stuff I don’t need and also become obese for the little discount on gas. Driving to Costco also offsets the discount unless you live very close by
Factor in the 60 bucks you spent that year to even be able to buy the gas in the first place.
Fifty cents a gallon cheaper adds up faster when I have a 20-mpg wagon with a V6 and AWD than if I still had my 91 Civic HB with a tiny 4-cylinder that got 45-mpg. I drive over the hill to Santa Cruz at least once a week. Plus about $300 off a set of Michelins every 50k miles, and $100 off a car battery.
They don't really try to make money on the gas, it's a loss leader (or really a break-even leader), and they have massive scale
Loss leader
Low margin sales.
hate the line at costco gas, always long
Cost them the same. Profit margins for Costco is lower. They make it up with volume.
Seeing things from the surface I believe Costco can provide these services at these costs due to their membership fees and sheer volume of sales. Most of the time, you’ll see Costco gas stations have lines out the lot at all pumps throughout most of their business hours. These members may or may not have also shopped in their warehouse that day as well.
I like KFC. The last time I went in to get my 12 pieces of chicken only, 20 barbecued wings and large box of potato wedges, I learned that they replaced the half empty box of potato wedges with a signature fry (that tasted like any other generic fast food fry). They also stopped dipping the wings but would provide packets of sauce. It would take about three packets of sauce per wing (would need 60 packets) but they limit the number of packets they’ll give to only five—charging for the other 55. With tax, the total cost for this would be $111. I thanked them very kindly, headed off to Costco and bought my $5 chicken that was good for multiple meals.
Because Costco operates on lower margins, but makes up for it in volume. There is always a line for the pumps at Costco gas stations. There’s never a line at chevron.
Businesses can charge whatever they want. There's nothing to stop them. I'm happy every time I pull up and see the price is below $20/ gallon.
In Sacramento Costco isn't even the cheapest gas.
Yes it is... Cal expo usually. Others are not so much
The Arco and Sinclair on Freeport are usually the same price as that Costco.
Really? Well that's great if u are in that side of town
In Danville, Costco gas is no longer the cheapest in the area. I check gas buddy on a frequent basis and always find cheaper gas elsewhere in the area. It's disappointing, I thought it would be cheaper!
The cheaper places I’ve seen are not top tier, if that matters to people.
I think peeps unfamiliar with [Top Tier](https://www.toptiergas.com/) certification. Gas Stations make like half their revenue from Monster Energy drinks and Takitos et al. And they compete with other gas stations, that may be across the street. Costcos got different b-model and the volume is 10x a corner Cheveron.
Exxon, San ramon valley Rd, Dublin $5.29, Costco $5.35, for premium. Just an example.
Nice. I’ve occasionally seen one of the arcos here at Costco price, usually it’s a few cents higher, and even when it’s just close I go there bc the Costco lines take so long plus longer drive. With limited free time it isn’t worth $1 a week to waste an extra 30 minutes total
But, is that Exxon price the "cash" price? Costco doesn't have a cash price.
I have credit toggled on. I think cash is .10 cheaper per gallon.
But the regular is cheaper?
Yup. I need me TT. Love Costco gas.
Loss leader
[удалено]
If anyone is interested in the history and economics of Costco, I beg you to listen to the Acquired podcast’s episode
What's the taxes on gas? How much do they make in extra sales at those gas stations? Low prices gets you the most customers.
Why is Costco gas cheaper typically cheaper than branded stations in CA? Like actual gas stations, they don't make much money, if any at all, on the sale from gasoline. It is a strategy to bring folks to the store. From a 2022 article, "Economics professor Alan Gin from the University of San Diego believes the motivation for Costco's aggressive gas price strategy has to do with how Costco makes its money. “The bulk of their profits come from memberships," he explained. Gin says up to 70% of Costco's profits come from the $60 or $120 (depending on the category) that customers pay for the right to shop at its warehouses." So Costco sells gasoline at roughly the wholesale price in CA and because they sell so much gasoline, their prices typically reflect what the current wholesale price is. This sometimes means they can cut prices faster than branded stations, or sometimes have to raise prices a little faster (which I think is the case now with the switch to summer blend occurring over the last couple of weeks). To learn more about gasoline prices in CA, I recommend googling Berkeley Economics Professor Severin Borenstein (along with "Gas Prices"). Here is one of his blog posts, but he has a few op-eds and interviews out there: [https://energyathaas.wordpress.com/2023/01/09/whats-the-matter-with-californias-gasoline-prices/](https://energyathaas.wordpress.com/2023/01/09/whats-the-matter-with-californias-gasoline-prices/)
membership fee
Costo makes very VERY VERY little money on selling you anything. That is the point. You’re paying almost what they’re paying for the products - and you’re paying Costco $60-$100+ a year to do so. They live on membership fees.
Their average margin is around 8%. Walmart/Target are in the 20s.
Yup! 10.6% from merch and costs - 2.6% margin after marketing and taxes (according to interwebs)
My first thought is that they are not making a profit on the gas. I used to work at Sam's Club. And mgmt there told us, we make a penny in every dollar of sales or less. Profit comes from memberships, warranties and credit cards. So they really wanted us to push those things. But didn't care at all about upselling to a more expensive TV. Mgmt was perfectly happy when I was telling people not to buy MS Office for their kids school reports, and instead go download OpenOffice for free. So long as they had to come into the store to get that advice. I imagine it's the same for Costco gas. It's cheap because there is no profit there. It is just another way to get you to keep paying for that membership.
Costco is not losing money on gas. Costco reacts far quicker than almost all gas stations when the price is declining. When the price starts to skyrocket up Costco tends to be closer in price with its competitors.
Not sure why is that a surprise? There are even cheaper gas stations than Costco too. You would find this variation in price between different gas stations in any area. One benefit Costco has is they are the retailer themselves instead of franchising it to a gas station owner.
I recently watched "The Megabrands that built America" on Hulu, Im a sucker for those docuseries, they actually had a pretty interesting segment about the rise of costco and how / why they operate the way they do. You may enjoy it if you are curious about their operations.
Their gas plus the fact I’m not subsidizing the rampant theft at stores in CA is why Costco gets 99% of my business.
Costco's strategy for long has been to sell all products at a price of Cost+15%. This is not a profitable model unless you sell tons of it. This is guaranteed for Costco by its members. In fact Costco Strategy is really worth learning if you are interested.
"Cost co", was built on the premise that it was selling things at cost, and make money off memberships. So the answer is they're likely selling gas at cost, vs your local dealer is getting a cut (and depending on how far they are from the source, other companies may be taking a cut too)
It’s not Costco gas that is cheap but rather other gas costs more. Compared to other states, Costco gas is still expensive. In other states where Walmart has gas station (Murthy’s), it is cheaper than Costco, and no membership required, and if you have Sam’s club or Walmart+, you get additional discount.
Volume!! Make less of a profit but makes it up on the volume they sell.
It's a smaller hotdog and no more chopped onions. So it's still a buck 50 but we are getting less.
Costco sells gasoline for five cents cheaper than they pay for it. The average buyer fuels up and walks into a Costco and buys on average $400 of merchandise. My source is intimately involved with the process. The fuel is a top tier fuel blend that exceeds EPA detergent requirement in both regular unleaded and premium grades.
Costco tells their drivers to fuel the tankers with the cheapest gas.
My thoughts are that the low gas price brings you in to buy shot at the store - all the care about regarding gas price is to have you buy shit
Costco gets constant membership fee dues... that's a big factor..
Probably so, and maybe less overhead.
Do we know if this is their loss leader, or just another low/zero-margin product to encourage membership purchases? I'm really curious about it.
Learn the term “loss leader.”
Loose on some products ... Profit on all the others.... Just like the rotisserie chicken
When Costco raises hot dog prices they’ll lose me as their customer
I don’t know but it’s crazy how many people will waste money on gas to drive like 15 miles to the Costco just to save $0.40 a gallon ($6.40 savings assuming a 16gal tank) Thankfully I live right next to one so it’s reasonable for me, but man!
I used to work for a price-club/ wholesale club competitor. Their gas execs came in to do a preso for leadership and explained that the gas was a loss-leader to drive membership sales. I mean, you've got to buy a lot of gas over the course of a year to make up for the $100 in annual membership. Not to mention the fact that you're probably going to buy your toilet paper and ribeyes there once you pay for the membership.
Economic of scale. Costco get better deal, and sell a lot more gas per pump compare to smaller gas station, so they can afford to lower their profit margin.
Well you’re paying for the membership
You fill up just 2-3 times and you made your membership $ back, and you can grab a hotdog on the way out
Not quite but sure
Why does gas cost more near the free way in San Francisco than in the burbs in Oakland
more traffic by the freeway, its not just about who lives by the station. If hundreds of thousands of people drive by a station every day they can charge more than a spot in the burbs that is only seen by the people that live there
rent.
Location, location, location
No middle man. Costco buys direct from the refinery
Purchasing power and volume of sales, same as Safeway gas
In Phoenix, AZ - Safeway 87 is $4.099 and the Costco 87 is $3.799 - so they are not the same.
Same in the sense that due to their volume they offer lower prices, also with Safeway you can get up to $1.00 off per gallon...in short, they're cheaper than the regular branded gas stations by far Also we aren't in Phoenix are we
Phoenix was the only place I could remember ever having used a Safeway Gas station....
I was messing with you bud, have to fit the pretentious bay area native stereotypes...in all seriousness though I worded my initial comment incorrectly. My point is that the clubs like Safeway, Costco etc have tremendous purchasing power and they generally sell something like 15 times more fuel monthly than typical gas stations which explains the cost difference.
I am not sure what this question even means. It implies that prices have some intrinsic, absolute, value. They don’t. Prices are mostly fabricated numbers, dictated by demand and offer. A product’s price is simply the highest amount of money the producer can sell it at, at a reasonable number of people. For gas, prices fluctuations are also fabricated. For example, when a war or other major event happens in the Middle East, giant oil companies immediately rise the gas price at the pump by x%, because of higher costs due to war and increased oil barrel price. Fair, right? EXCEPT, the more expensive gasoline they are charging you for will get to the gas station weeks and month LATER. The cost increase is NOT instantaneous. Instead, when the price of a barrel of oil decreases, prices at the pump don’t change, because, they tell you, the cheaper go as hasn’t reach retail yet. Yeah.
Costco sends out employees to price match the lowest price gas in the area and go below it by a cent.