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Costco gas is famously a loss leader, typically running 15 to 20 cents below surrounding stations. Is this true? I always assumed that Costco just had better d

Costco gas is famously a loss leader, typically running 15 to 20 cents below surrounding stations. Is this true? I always assumed that Costco just had better deals/longer horizon commitments so it could undercut local stations. Maybe they even own a refinery just to maintain the best margin.

wyre 1mo ago
It makes sense. The ~$10 someone saves pumping at Costco is easily made up in the >$100 shopping trip they are making, or compared to lifetime spend.
- bryanlarsen 1mo ago
  No it doesn't. Costco has a gross profit margin of 11% and a net profit margin of 3%. Losing $10 to make $3 isn't viable.
  - basch 1mo ago
    Costco isnt losing $10. They can sell gas at cost to run a gas station if they want to. They break even and get people there instead of a normal gas station.
shrubble 1mo ago
They are selling 10000 gallons a day at some locations, so I find it hard to believe. More like they don’t have a need to make a profit and they run the station in a barebones manner on real estate that they get as part of the larger site. So it would be a loss leader for anyone else.
- ashley95 1mo ago
  If they lose 10c/gal, it still sounds like an incredibly small amount in the grand scheme of things and like a great loss leader?
  - mmh0000 1mo ago
    It really doesn't sound good. A loss leader is meant to get you into the store; the gas station is usually far away, in the back of the parking lot. Their $5 chicken now, that's a great "loss leader" (if it even is; that isn't confirmed). Because that forces you not just into the store, but all the way to the back. So you go in for the $5 chicken and leave with $20 of blueberries, $20 of cereal $20 of milk $20 of mayo.
    - 0cf8612b2e1e 1mo ago
      There was a quote from the Costco CFO that the rotisserie chicken cost them like $40 million annually. It is definitely a loss leader. https://fortune.com/2015/05/29/costco-chicken-prices/ https://fortune.com/2015/05/29/costco-chicken-prices/
- hiitsmyaccount 1mo ago
  [dead]
teruakohatu 1mo ago
Selling below the price of surrounding stations doesn’t mean they are losing money on the fuel. Costco has a single store in my country and it’s butter that they sell cheaply to get people in the door. But I doubt they are losing money on it.
PessimalDecimal 1mo ago
The Acquired episode about Costco (https://www.acquired.fm/episodes/costco https://www.acquired.fm/episodes/costco) claims they don't do loss leaders at all.
- ButlerianJihad 1mo ago
  It would be illogical to make gasoline a "loss leader" because, surely, there are people who visit the gas station and then jet out of there without going anywhere else. A loss leader item is something that gets people in the door, puts their butt in a seat, and gets them to make a transaction that will include piling on other stuff. So if your Jumbo Jack is a loss leader, then you can charge $2.00 for sodas and $3.00 for French fries, and the same customer will probably also grab a $6 Oreo shake. Someone who's filling up for gas may or may not go inside the Costco store proper. But the gasoline isn't going to influence their buying habits. If they "just need gas" that's all they'll get. Conversely, I cannot see how a $1.50 hot dog is doing anything but losing money. It's a classic candidate for loss leader.
  - cj 1mo ago
    In rural America, getting someone into the parking lot isn’t much different than in the front door when the next box store is 10-20+ minutes away. It makes less sense in the suburbs.
  - Spooky23 1mo ago
    The average Costco ticket is $150 out the door. The retail margin is 11%, or $16.50. Say you fill the car with 15 gallons, and they lose $0.25/gallon. That’s $3.75. If 1/3 of the gas station customers go in the store, they’re making $5.50 from retail, less the gas losses they net $1.75. They make money, deny their competition business, and lock you mentally into saving money on gas and renewing that membership. That membership is half their operating income. I’m probably being pessimistic. One thing with Costco is they are incredibly efficient, so I’m sure they’ve baked out cost and overhead. You can see stuff like how they provide the minimum number of garbage cans.
- Spooky23 1mo ago
mikestew 1mo ago
During what I seem to recall was an earnings call about ten years ago, it was stated that Costco doesn't do loss-leaders. What they more likely do is sell the gas close to cost.
- loco5niner 1mo ago
  Their rotisserie chicken is certainly a loss leader, even if they don't call it that.
  - rpaik 1mo ago
    Same thing with hotdog combo at $1.50. The price hasn't changed in 40+ years. Here's a good article: https://www.inc.com/bill-murphy-jr/how-costco-turns-loss-leaders-into-an-art-form-and-why-your-business-might-want-to-copy-them/91270572 https://www.inc.com/bill-murphy-jr/how-costco-turns-loss-lea...
    - stefap2 1mo ago
      [flagged]
xenadu02 1mo ago
When you have a bunch of stores you do sign distribution deals with a nationwide distributor. If you buy enough fuel you might even be able to sign with an oil company that has refining capacity or their own distribution arm. So Costco is definitely not paying the same price as your local convenience store. But they aren't getting a 35% discount either. As many others have noted: Costco does not do loss-leaders. They're likely selling at cost or a very small profit above cost. When we bought a house in 2021 I had 9.6kW of solar installed (and 20kWh of battery) and bought our first electric car. Since replaced it and have two electric cars now. At times like this I'm thankful for that. I make my own driving energy on my roof, covering over 80% of all driving and home electric usage.
- bluGill 1mo ago
  Nobody is signing a national contract for gasoline. It all comes from the local refinery, or in some cases a pipeline to a slightly more distant refinery. The final shipping is by truck and it's almost never the case that you can find a different place that you could drive a truck to that's cost effective. Shipping guests. A few more miles by truck, it's only a few dollars different, and so it doesn't cost much difference per gallon. However, when we're talking 100 miles, now you're talking about significantly more money and that shows up in the pump price. Worse, even if you are willing to pay the price, every state has different specific rules for gasoline and so there is a very high odds that only your local refinery can make the correct gasoline for your local area. What national chains can do is specify the additive that the refiner adds. Anyone other than a national chain doesn't have enough profit to be worth trying to build their own additive package and takes the standard additives the refinery has, which are almost always a good package anyway.
  - giardini 1mo ago
    Do we know how Costco's "additive package" rates relative to other providers (e.g., Shell's) additive packages? Currently I buy Shell gas b/c I trust that it's good for my car's engine. Can I trust that Costco's gas is as good as Shell's?
    - 1mo ago
all2 1mo ago
It's not true where I live. Costco is on average 5-10c more expensive than the cheaper places near me.
- OptionOfT 1mo ago
  Those places, are they top tier?
- nightpool 1mo ago
  Are you comparing cash-only prices to card prices? Some gas stations advertise cash-only prices with 20-30c added on for card processing fees—I've never seen Costco be more expensive then the card price
  - all2 1mo ago
    The prices are card prices. Specifically, Walmart is typically the cheapest place around here.

wyre 1mo ago

It makes sense. The ~$10 someone saves pumping at Costco is easily made up in the >$100 shopping trip they are making, or compared to lifetime spend.

bryanlarsen 1mo ago
No it doesn't. Costco has a gross profit margin of 11% and a net profit margin of 3%. Losing $10 to make $3 isn't viable.
- basch 1mo ago
  Costco isnt losing $10. They can sell gas at cost to run a gas station if they want to. They break even and get people there instead of a normal gas station.

shrubble 1mo ago

They are selling 10000 gallons a day at some locations, so I find it hard to believe. More like they don’t have a need to make a profit and they run the station in a barebones manner on real estate that they get as part of the larger site. So it would be a loss leader for anyone else.

ashley95 1mo ago
If they lose 10c/gal, it still sounds like an incredibly small amount in the grand scheme of things and like a great loss leader?
- mmh0000 1mo ago
  It really doesn't sound good. A loss leader is meant to get you into the store; the gas station is usually far away, in the back of the parking lot. Their $5 chicken now, that's a great "loss leader" (if it even is; that isn't confirmed). Because that forces you not just into the store, but all the way to the back. So you go in for the $5 chicken and leave with $20 of blueberries, $20 of cereal $20 of milk $20 of mayo.
  - 0cf8612b2e1e 1mo ago
    There was a quote from the Costco CFO that the rotisserie chicken cost them like $40 million annually. It is definitely a loss leader. https://fortune.com/2015/05/29/costco-chicken-prices/ https://fortune.com/2015/05/29/costco-chicken-prices/
hiitsmyaccount 1mo ago
[dead]

teruakohatu 1mo ago

Selling below the price of surrounding stations doesn’t mean they are losing money on the fuel. Costco has a single store in my country and it’s butter that they sell cheaply to get people in the door. But I doubt they are losing money on it.

PessimalDecimal 1mo ago

The Acquired episode about Costco (https://www.acquired.fm/episodes/costco https://www.acquired.fm/episodes/costco) claims they don't do loss leaders at all.

ButlerianJihad 1mo ago
It would be illogical to make gasoline a "loss leader" because, surely, there are people who visit the gas station and then jet out of there without going anywhere else. A loss leader item is something that gets people in the door, puts their butt in a seat, and gets them to make a transaction that will include piling on other stuff. So if your Jumbo Jack is a loss leader, then you can charge $2.00 for sodas and $3.00 for French fries, and the same customer will probably also grab a $6 Oreo shake. Someone who's filling up for gas may or may not go inside the Costco store proper. But the gasoline isn't going to influence their buying habits. If they "just need gas" that's all they'll get. Conversely, I cannot see how a $1.50 hot dog is doing anything but losing money. It's a classic candidate for loss leader.
- cj 1mo ago
  In rural America, getting someone into the parking lot isn’t much different than in the front door when the next box store is 10-20+ minutes away. It makes less sense in the suburbs.
- Spooky23 1mo ago
  The average Costco ticket is $150 out the door. The retail margin is 11%, or $16.50. Say you fill the car with 15 gallons, and they lose $0.25/gallon. That’s $3.75. If 1/3 of the gas station customers go in the store, they’re making $5.50 from retail, less the gas losses they net $1.75. They make money, deny their competition business, and lock you mentally into saving money on gas and renewing that membership. That membership is half their operating income. I’m probably being pessimistic. One thing with Costco is they are incredibly efficient, so I’m sure they’ve baked out cost and overhead. You can see stuff like how they provide the minimum number of garbage cans.
Spooky23 1mo ago

mikestew 1mo ago

During what I seem to recall was an earnings call about ten years ago, it was stated that Costco doesn't do loss-leaders. What they more likely do is sell the gas close to cost.

loco5niner 1mo ago
Their rotisserie chicken is certainly a loss leader, even if they don't call it that.
- rpaik 1mo ago
  Same thing with hotdog combo at $1.50. The price hasn't changed in 40+ years. Here's a good article: https://www.inc.com/bill-murphy-jr/how-costco-turns-loss-leaders-into-an-art-form-and-why-your-business-might-want-to-copy-them/91270572 https://www.inc.com/bill-murphy-jr/how-costco-turns-loss-lea...
  - stefap2 1mo ago
    [flagged]

xenadu02 1mo ago

When you have a bunch of stores you do sign distribution deals with a nationwide distributor. If you buy enough fuel you might even be able to sign with an oil company that has refining capacity or their own distribution arm. So Costco is definitely not paying the same price as your local convenience store. But they aren't getting a 35% discount either. As many others have noted: Costco does not do loss-leaders. They're likely selling at cost or a very small profit above cost. When we bought a house in 2021 I had 9.6kW of solar installed (and 20kWh of battery) and bought our first electric car. Since replaced it and have two electric cars now. At times like this I'm thankful for that. I make my own driving energy on my roof, covering over 80% of all driving and home electric usage.

bluGill 1mo ago
Nobody is signing a national contract for gasoline. It all comes from the local refinery, or in some cases a pipeline to a slightly more distant refinery. The final shipping is by truck and it's almost never the case that you can find a different place that you could drive a truck to that's cost effective. Shipping guests. A few more miles by truck, it's only a few dollars different, and so it doesn't cost much difference per gallon. However, when we're talking 100 miles, now you're talking about significantly more money and that shows up in the pump price. Worse, even if you are willing to pay the price, every state has different specific rules for gasoline and so there is a very high odds that only your local refinery can make the correct gasoline for your local area. What national chains can do is specify the additive that the refiner adds. Anyone other than a national chain doesn't have enough profit to be worth trying to build their own additive package and takes the standard additives the refinery has, which are almost always a good package anyway.
- giardini 1mo ago
  Do we know how Costco's "additive package" rates relative to other providers (e.g., Shell's) additive packages? Currently I buy Shell gas b/c I trust that it's good for my car's engine. Can I trust that Costco's gas is as good as Shell's?
  - 1mo ago

all2 1mo ago

It's not true where I live. Costco is on average 5-10c more expensive than the cheaper places near me.

OptionOfT 1mo ago
Those places, are they top tier?
nightpool 1mo ago
Are you comparing cash-only prices to card prices? Some gas stations advertise cash-only prices with 20-30c added on for card processing fees—I've never seen Costco be more expensive then the card price
- all2 1mo ago
  The prices are card prices. Specifically, Walmart is typically the cheapest place around here.