One thing to understand is just how the service 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 would really, in some instances, deliver fuel to Costco Gas Hours and then visit a Chevron/Shell/Valero/etc and deliver fuel there. The only real 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 service station excluding a 1-5% additive difference, and in most cases 1-2%. However the brand name stores must pay licensing and royalty fees to the brand name they operate under. Also the brand name stores should also purchase a certain % of gas from refineries owned by the brand name. In comparison, Costco only orders from them if they are the least expensive refinery.
This is why you rarely see name brand unattended stations. Branded stores make their funds on the $1.99 overpriced bottle of coke, not from your gas. Even unattended, a branded station costs much more to operate when compared to a Costco fuel station.
It also helps that Costco doesn’t take all credit cards, and thus save millions in card processing fees.
Why do other gas stations charge a lot more than Costco? There is this misconception that Costco sells gasoline being a loss leader to attract more members.
Yes, they would like to have more members, nevertheless the company does not deliberately lose cash at the gas stations. Costco buys their gasoline “off the rack” (Being 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 very own Kirkland Signature fuel additive. The cost is usually the spot market price, which is pretty competitive as to what other gas stations are investing in their inventory.
Depending on the location from the warehouse, they will usually comp shop 4 service stations (branded and independent) in a certain radius of the warehouse. Every day, a staff member will drive around and get the prices from the 4 service stations they comp shop on. The values 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 must change the purchase price on the sign to mirror that prices that 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 gas stations sell maybe 3 truckloads Per Week. (Don’t think that neighborhood gas stations usually do not make money selling gasoline) Depending on the area, you may have branded gasoline stations that keep their price high, so Costco will surely earn money on each gallon of gas even if they’re selling gas for 20-30-40 cents per gallon lower than the other gas stations. And then there are other gas stations that are aggressive on their pricing, and Costco will not beat that price but just match it. The stations that are aggressively pricing their fuel have a reliable margin on their product, to ensure that particular Costco is still making profits on each gallon of gas sold, albeit a smaller amount compared to a Costco location with competing service stations that are not as aggressive on the pricing. The majority of the neighborhood service stations that aggressively price their fuel usually do not take charge cards. For that typical Costco member, the gasoline remains cheaper at Costco simply because they use their Costco charge card using a 4% rebate on gasoline.
The only time that I have encountered where we deliberately needed 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 would be more than the prior delivery earlier within the day. The neighborhood gasoline stations remain selling gas they bought three days (even every week) ago, however right now we’re selling gasoline at the same price or just slightly lower compared to the neighborhood service station is selling but at a higher acquisition cost. Throughout the times during the price volatility, comp shops of competing neighborhood service stations may be done repeatedly a day to see if one other ewgoqq stations may have adjusted their prices. Costco may and definately will adjust their price in the midst of the day to take into account competitors’ price changes and to minimize losses.
Now, it really works inversely as well. Because the gas prices within the wholesale market commence to drop, each subsequent load of gasoline is cheaper compared to one received the day before or even earlier in the day. Considering that the neighborhood service stations continue to have gas which they bought at a 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 service station, just like the other “ancillary businesses” (pharmacy, food court, tire center, photo center, meat, bakery, optical, service deli) within the ware