One thing to comprehend is the way 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 Sunday 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 the same as 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. Even the brand name stores should also purchase a certain % of gas from refineries belonging to the brand name. In comparison, Costco only orders from them if they are the most affordable refinery.
This is the reason you rarely see brand name unattended stations. Branded stores make their funds on the $1.99 overpriced bottle of coke, not from the gas. Even unattended, a branded station costs a lot more to function compared to a Costco fuel station.
It can also help that Costco doesn’t take all credit cards, and therefore save millions in card processing fees.
Why do other gasoline stations charge a lot more than Costco? There is this misconception that Costco sells gasoline as being a loss leader to attract more members.
Yes, they would like to have more members, but the company fails to deliberately lose money at the gasoline 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 price is often the spot market price, that is pretty competitive as to what other gas stations are paying for their inventory.
Depending on the location from the warehouse, they will usually comp shop 4 gas stations (branded and independent) within a certain radius in the warehouse. Every morning, a worker will drive around and get the values through the 4 gas stations they comp shop on. The prices are applied for the AS400, and corporate gas department will call and tell the warehouse how much the gas will sell for the day. A worker just has to change the cost on the sign to reflect 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 gasoline stations sell maybe 3 truckloads Per Week. (Don’t believe that neighborhood service stations tend not to 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 then there are other gas stations that are aggressive on their own pricing, and Costco will never beat that price but just match it. The stations which can be aggressively pricing their fuel continue to have a decent margin on their own product, to ensure that particular Costco is still making money on each gallon of gas sold, albeit a reduced amount than a Costco location with competing gas stations that are not as aggressive on their pricing. Most of the neighborhood service stations that aggressively price their fuel usually do not take credit cards. For the typical Costco member, the gasoline continues to be cheaper at Costco since they use their Costco credit card using a 4% rebate on gasoline.
The sole time which i have encountered where we deliberately had to sell gasoline confused was during sudden spikes in gas prices. Since Costco turn their fuel inventory so quickly, each new delivery on the same day would be higher than the previous delivery earlier in the day. The area gasoline stations are still 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 compared to neighborhood service station is selling but at a higher acquisition cost. Through the times of price volatility, comp shops of competing neighborhood service stations may be done many times a day to see if another ewgoqq stations may have adjusted their prices. Costco may and can adjust their price in the middle of the day to account for competitors’ price changes and also to minimize losses.
Now, it works inversely as well. Since the gas prices in the wholesale market commence to drop, each subsequent load of gasoline costs less than the one received the day before or even earlier inside the day. Since the neighborhood gas stations still have gas they bought at a high price, they haven’t drop their prices yet, and Costco can start lowering prices but still make decent margins on each gallon of gas.
The gas station, just like one other “ancillary businesses” (pharmacy, food court, tire center, photo center, meat, bakery, optical, service deli) within the ware