One thing to know 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 will actually, in some instances, deliver fuel to Costco Gas Pump Hours and then visit a Chevron/Shell/Valero/etc and deliver fuel there. The only 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%. Nevertheless the brand name stores must pay licensing and royalty fees to the brand name they operate under. Even the brand name stores also must buy a certain % of gas from refineries owned by the brand name. In contrast, Costco only orders from them if they are the least expensive refinery.
This is why you hardly ever see brand unattended stations. Branded stores make their money on the $1.99 overpriced bottle of coke, not from the gas. Even unattended, a branded station costs far more to operate when compared to a Costco fuel station.
It may also help that Costco doesn’t take all credit cards, and thus 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 being a loss leader to draw in more members.
Yes, they would like to attract more members, nevertheless the company fails to deliberately lose cash on the service 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 particular Kirkland Signature fuel additive. The purchase price is usually the spot selling price, that is pretty competitive from what other gas stations are spending money on their inventory.
Depending on the location from the warehouse, they will usually comp shop 4 service stations (branded and independent) inside a certain radius from the warehouse. Every morning, an employee will drive around and obtain the prices from your 4 gas stations they comp shop on. The values are put into the AS400, and corporate gas department will call and tell the warehouse exactly how much the gas will sell for the day. An employee 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 most of the surrounding service stations sell maybe 3 truckloads Every Week. (Don’t believe that neighborhood gasoline 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 make money on each gallon of gas even if they’re selling gas for 20-30-40 cents per gallon lower than one other gasoline stations. And then there are other gasoline stations which can be aggressive on their own pricing, and Costco will not beat that price but just match it. The stations which are aggressively pricing their fuel have a reliable margin on the product, in order that particular Costco will still be making profits on each gallon of gas sold, albeit a lesser amount than a Costco location with competing gasoline stations that are not as aggressive on their pricing. Most of the neighborhood service stations that aggressively price their fuel do not take credit cards. For your typical Costco member, the gasoline continues to be cheaper at Costco because they use their Costco credit card with a 4% rebate on gasoline.
The only time that I have encountered where we deliberately had 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 previous delivery earlier inside the day. The area gas stations are still selling gas they bought three days (even a week) ago, but 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. Throughout the times during price volatility, comp shops of competing neighborhood service stations may be performed several times a day to see if another ewgoqq stations may have adjusted their prices. Costco may and will adjust their price in the center of the day to account for 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 costs less compared to one received the day before or even earlier inside the day. Since the neighborhood gasoline stations have gas that they purchased at a high 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 service station, just like the other “ancillary businesses” (pharmacy, food court, tire center, photo center, meat, bakery, optical, service deli) within the ware