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 gas stations. The same truck will actually, in some cases, deliver fuel to Costco Gas Hours and then check out 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 the same as at a brand name service 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 must also invest in a certain % of gas from refineries owned by the brand name. In contrast, Costco only orders from them if they’re the cheapest refinery.
This is the reason you rarely see brand unattended stations. Branded stores make their cash on the $1.99 overpriced bottle of coke, not from your gas. Even unattended, a branded station costs a lot more to function when compared to a Costco fuel station.
It also helps that Costco doesn’t take all credit cards, and so save millions in card processing fees.
So why do other gas stations charge much more than Costco? There exists this misconception that Costco sells gasoline as a loss leader to attract more members.
Yes, they would like to have more members, but the company fails to deliberately generate losses at the gasoline stations. Costco buys their gasoline “off the rack” (Finding yourself 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 generally the spot market price, that is pretty competitive from what other gas stations are paying for their inventory.
Depending on the location from the warehouse, they will likely usually comp shop 4 service stations (branded and independent) in a certain radius from the warehouse. Every morning, an employee will drive around and obtain the values from your 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 your day. A staff member just has to change the purchase price on the sign to reflect that prices which are downloaded straight to the pumps.
The warehouses I worked at averaged 4 – 5 truckloads (approximately 8800 gallons each) per day, while most of the surrounding gas stations sell maybe 3 truckloads Per Week. (Don’t feel that neighborhood gasoline stations do not make any cash selling gasoline) Depending on the area, you may have branded gasoline stations that keep their price high, so Costco will certainly earn money on each gallon of gas even if they’re selling gas for 20-30-40 cents per gallon less than the other gas stations. And there are other service stations that are aggressive on the pricing, and Costco will not beat that price but just match it. The stations which can be aggressively pricing their fuel continue to have a decent margin on the product, to ensure that particular Costco is still earning money on each gallon of gas sold, albeit a smaller amount compared to a Costco location with competing gas stations which are not as aggressive on their pricing. Most of the neighborhood gasoline stations that aggressively price their fuel tend not to take credit cards. For that typical Costco member, the gasoline remains cheaper at Costco simply because they use their Costco charge card with a 4% rebate on gasoline.
The only time 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 more than the prior delivery earlier inside the day. The area gasoline stations continue to be selling gas they bought 72 hours (even every week) ago, however we’re selling gasoline on the same price or just slightly lower compared to neighborhood gas station is selling but with a higher acquisition cost. Through the times of price volatility, comp shops of competing neighborhood service stations may be completed many times a day to find out if another ewgoqq stations may have adjusted their prices. Costco may and can adjust their price in the middle of the day to take into account competitors’ price changes as well as minimize losses.
Now, it really works inversely as well. Because the gas prices inside the wholesale market begin to drop, each subsequent load of gasoline costs less than the one received the day before or even earlier in the day. Considering that the neighborhood service stations still have gas they bought at a very 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 the other “ancillary businesses” (pharmacy, food court, tire center, photo center, meat, bakery, optical, service deli) within the ware