Costco differs from other retailers in that it charges members an annual fee to get in the door and relies on those fees for a big chunk of its revenue. It’s because of those fees, in fact, that Costco is able to offer the low prices it’s known for.
Costco doesn’t need to turn as big a profit on the inventory it sells because it collects $65 or $130 a year from every member household. For this reason, Costco can also afford to take a loss on certain items.
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The famous $1.50 hot dog and soda combo at the food court, for example, is a deal Costco loses money on every day. But it’s also a deal that encourages shoppers to come to the store and spend money, not to mention renew their memberships year after year.
Related: Costco quietly pulls popular product, upsets fans
In addition to low prices on inventory, Costco is also known for having some of the lowest gas prices in town.
That’s another reason so many people are willing to pay for a membership. Filling up a car every week and reaping those savings could easily make up for the cost of an annual membership fee.
Plus, one little-known fact about Costco gas is that it holds the TOP TIER designation. That means it’s designed to lead to better performance.
If you fill up your car at Costco, you can potentially save money in the form of not just a lower price per gallon, but also more fuel efficiency and a longer-lasting engine.
Costco’s newest store type could sorely disappoint members.
Image source: Bloomberg/Getty Images
Costco plans to open a standalone fuel station
Filling up on gas is a perk of shopping at Costco. You can drive over for groceries and maybe a cheap food-court meal and replenish your tank on the way in or before heading home.
But not every Costco warehouse has a gas station. And that’s a missed opportunity for Costco, as well as a bummer for members who would otherwise appreciate that perk.
Related: Costco brings back huge perk members have missed
Now, Costco is making plans to open its first standalone gas station in Mission Viejo, California. Like its regular gas stations that are warehouse club-adjacent, this new fuel station will only be open to members.
Work on the project has started already, and the gas station is expected to open next year.
Earlier this year, Costco extended its gas station hours to better serve members. Some had complained that fuel station hours were too limited, so Costco expanded them beyond typical warehouse club hours.
At most Costco locations, gas station hours are now 6 a.m. to 10 p.m. Monday through Friday, 6 a.m. to 8:30 p.m. on Saturdays, and 6 a.m. to 7:30 p.m. on Sundays.
Costco’s standalone fuel station may not work out as well as expected
During the company’s most recent earnings call, Costco execs were quick to point out that extending fuel station hours led to an uptick in gas-related sales. That wasn’t surprising.
It’s also not surprising to see Costco open a standalone fuel station, given that recent success.
Related: Costco CEO admits warehouse club may change its hours
But whereas Costco’s management team and members alike may be excited by the idea of a standalone fuel station, it’s a concept that could sorely backfire.
If you’ve ever tried filling up your car in conjunction with a Costco shopping run, you probably had to wait in a decent-sized line to put gas in your vehicle. Costco’s standalone fuel station might attract throngs of members, leading to even longer wait times.
There’s also the convenience factor to think about.
It’s one thing to drive out of your way to go to Costco when you need groceries and want to wander the warehouse club aisles to hunt for new products and deals.
It’s another thing to drive out of your way to fill up your car on the cheap at a standalone Costco fuel station, only to get stuck waiting in a long line without the promise of a hot dog combo or free samples to make up for it.
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For this reason, Costco’s latest venture may not end up being so successful. And as a member, you may not love it.
Of course, only time will tell.
But a big part of the value of Costco is the total shopping experience — gas, groceries, and more. Taking everything but gas out of the equation could turn an otherwise enjoyable outing into nothing more than a long wait, even if you are saving a few cents per gallon in the process.
Maurie Backman owns shares of Costco.
