One thing to know 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 will actually, in some instances, 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 identical to at a brand name gas station excluding a 1-5% additive difference, and in most cases 1-2%. Nevertheless the brand name stores must pay licensing and royalty fees to the brand name they operate under. Also the brand name stores must also invest in a certain % of gas from refineries properties of the brand name. In contrast, Costco only orders from them if they are the least expensive refinery.
This is why you almost never see name brand unattended stations. Branded stores make their money on the $1.99 overpriced bottle of coke, not from your gas. Even unattended, a branded station costs much 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.
So why do other gasoline stations charge much 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 get more members, nevertheless the company will not deliberately generate losses 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 own Kirkland Signature fuel additive. The price is generally the spot market price, which can be 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 service stations (branded and independent) in a certain radius in the warehouse. Each morning, an employee will drive around and acquire the values from your 4 service stations they comp shop on. The costs are put into the AS400, and corporate gas department will call and tell the warehouse just how much the gas will sell for your day. An employee just needs to 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 gas stations sell maybe 3 truckloads Every Week. (Don’t feel that neighborhood gas stations do not make money 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 under another gas stations. And there are other gasoline stations which are aggressive on their own pricing, and Costco is not going to beat that price but just match it. The stations which can be aggressively pricing their fuel have a decent margin on their product, to ensure that particular Costco will still be 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 their own pricing. A lot of the neighborhood gasoline stations that aggressively price their fuel usually do not take charge cards. For the typical Costco member, the gasoline remains cheaper at Costco since they use their Costco bank card with a 4% rebate on gasoline.
The only real time which i have encountered where we deliberately needed 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 could be higher than the earlier delivery earlier in the day. The area service stations remain selling gas they bought 72 hours (even every week) ago, but now we’re selling gasoline on the same price or just slightly lower compared to neighborhood service station is selling but in a higher acquisition cost. Through the times during the price volatility, comp shops of competing neighborhood gas stations may be performed many times a day to determine if the other ewgoqq stations may have adjusted their prices. Costco may and will adjust their price in the midst of the day to make up competitors’ price changes as well as minimize losses.
Now, it functions inversely as well. Since the gas prices within the wholesale market begin to drop, each subsequent load of gasoline is less expensive compared to the one received the day before or even earlier in the day. Because the neighborhood service stations still have gas that they purchased 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