One thing to comprehend is how the service station industry works. The gas you get at Costco is the same gas you get Chevron, Shell, Valero, or other service stations. The same truck would really, sometimes, deliver fuel to Costco Gas Pump Hours and then visit a Chevron/Shell/Valero/etc and deliver fuel there. The sole difference is the additive they add to the gas at each station. The amount of additive is minimal, maybe 50 gallons per thousand of gas. Thus the gas you buy at Costco is identical to at a brand name gas station excluding a 1-5% additive difference, and often 1-2%. Though the brand name stores must pay licensing and royalty fees to the brand name they operate under. Also the brand name stores must also buy a certain % of gas from refineries properties of the brand name. By comparison, Costco only orders from them if they’re the most affordable refinery.
This is the reason you rarely see brand unattended stations. Branded stores make their cash on the $1.99 overpriced bottle of coke, not from your gas. Even unattended, a branded station costs a lot more to function compared to a Costco fuel station.
It also helps that Costco doesn’t take all charge cards, and thus save millions in card processing fees.
Why do other gas stations charge so much more than Costco? There is this misconception that Costco sells gasoline as being a loss leader to bring in more members.
Yes, they want to attract more members, nevertheless the company does not deliberately lose cash on the gas stations. Costco buys their gasoline “off the rack” (Finding yourself in SoCal, I’ve seen invoices from Chevron, Valero, Arco, Shell, ExxonMobil), where most independent stations buy their fuel from as well, then add their own Kirkland Signature fuel additive. The purchase price is usually the spot market price, which can be pretty competitive from what other gasoline stations are spending money on their inventory.
Depending on the location of the warehouse, they will usually comp shop 4 gasoline stations (branded and independent) in a certain radius of the warehouse. Every day, a staff member will drive around and acquire the values from the 4 gas stations they comp shop on. The prices are entered into the AS400, and corporate gas department will call and tell the warehouse exactly how much the gas will sell for that day. A worker just needs to change the price on the sign to mirror that prices which are downloaded right to the pumps.
The warehouses I worked at averaged 4 – 5 truckloads (approximately 8800 gallons each) per day, while a lot of the surrounding gasoline stations sell maybe 3 truckloads Every Week. (Don’t think that neighborhood gasoline stations do not make any cash selling gasoline) Depending on the area, you may have branded gasoline stations that keep their price high, so Costco will definitely generate income on each gallon of gas even if they’re selling gas for 25-30-40 cents per gallon less than one other gasoline stations. And there are other service stations which are aggressive on their own pricing, and Costco is not going to beat that price but just match it. The stations which are aggressively pricing their fuel continue to have a reliable margin on the product, to ensure that particular Costco is still earning money on each gallon of gas sold, albeit a reduced amount compared to a Costco location with competing gas stations which are not as aggressive on the pricing. A lot of the neighborhood service stations that aggressively price their fuel usually do not take credit cards. For your typical Costco member, the gasoline continues to be cheaper at Costco since they use their Costco credit card having a 4% rebate on gasoline.
The only real time that I have encountered where we deliberately were required to sell gasoline at a loss was during sudden spikes in gas prices. Since Costco turn their fuel inventory so quickly, each new delivery on the same day could be higher than the earlier delivery earlier within the day. The area service stations remain selling gas they bought 3 days (even a week) ago, however right now we’re selling gasoline in the same price or just slightly lower than the neighborhood gas station is selling but at a higher acquisition cost. During the times of price volatility, comp shops of competing neighborhood gasoline stations may be completed repeatedly a day to find out if the other ewgoqq stations may have adjusted their prices. Costco may and will adjust their price in the midst of the day to take into account competitors’ price changes as well as minimize losses.
Now, it works inversely as well. As the gas prices within the wholesale market start to drop, each subsequent load of gasoline costs less compared to one received the day before or even earlier in the day. Since the neighborhood service stations continue to have gas which they purchased at a higher price, they haven’t drop their prices yet, and Costco can start lowering prices and still make decent margins on each gallon of gas.
The gas station, just like the other “ancillary businesses” (pharmacy, food court, tire center, photo center, meat, bakery, optical, service deli) inside the ware