One thing to understand is how the gas station industry works. The gas you get at Costco is the same gas you get Chevron, Shell, Valero, or other gas stations. The same truck will in fact, in some cases, deliver fuel to Costco Gas Hours and then check out 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 exactly like at a brand name gas station excluding a 1-5% additive difference, and in most cases 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. In contrast, Costco only orders from them if they are the cheapest refinery.
This is why you almost never see name brand unattended stations. Branded stores make their funds on the $1.99 overpriced bottle of coke, not through the gas. Even unattended, a branded station costs a lot more to use compared to a Costco fuel station.
It can also help that Costco doesn’t take all charge cards, and thus save millions in card processing fees.
Why do other gasoline stations charge so much more than Costco? There exists this misconception that Costco sells gasoline as being a loss leader to draw in more members.
Yes, they would like to have more members, however the company does not deliberately lose cash on the gas stations. Costco buys their gasoline “off the rack” (Staying 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 particular Kirkland Signature fuel additive. The cost is generally the spot selling price, which is pretty competitive from what other gasoline stations are spending money on their inventory.
Depending on the location from the warehouse, they are going to usually comp shop 4 gas stations (branded and independent) in a certain radius of the warehouse. Every day, an employee will drive around and acquire the values from your 4 service stations they comp shop on. The prices are applied for the AS400, and corporate gas department will call and tell the warehouse just how much the gas will sell for the day. A worker just must change the purchase price on the sign to mirror that prices which can be 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 service stations sell maybe 3 truckloads Per Week. (Don’t think that neighborhood service stations do not make any cash selling gasoline) Depending on the area, you may have branded gas 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 under the other service stations. And and then there are other gas stations which are aggressive on their own pricing, and Costco will never beat that price but just match it. The stations that are aggressively pricing their fuel still have a reliable margin on their product, to ensure that particular Costco is still making profits on each gallon of gas sold, albeit a lesser amount when compared to a Costco location with competing service stations which are not as aggressive on their pricing. The majority of the neighborhood service stations that aggressively price their fuel tend not to take charge cards. For that typical Costco member, the gasoline is still cheaper at Costco simply because they use their Costco bank card with a 4% rebate on gasoline.
The only time which 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 greater than the prior delivery earlier within the day. The neighborhood service stations continue to be selling gas they bought 3 days (even per week) ago, however we’re selling gasoline in the same price or just slightly lower than the neighborhood gas station is selling but in a higher acquisition cost. Throughout the times during price volatility, comp shops of competing neighborhood service stations may be completed several times a day to determine if another ewgoqq stations may have adjusted their prices. Costco may and definately will adjust their price in the center of the day to make up competitors’ price changes and also to minimize losses.
Now, it really works inversely as well. Since the gas prices within the wholesale market start to drop, each subsequent load of gasoline costs less than the one received the day before or even earlier inside the day. Because the neighborhood service stations still have gas they bought at a very high price, they haven’t drop their prices yet, and Costco can start lowering prices yet still make decent margins on each gallon of gas.
The gas station, just like another “ancillary businesses” (pharmacy, food court, tire center, photo center, meat, bakery, optical, service deli) in the ware