As gas prices reach all-time highs worldwide, retailers like Costco and Walmart offer some of the lowest rates in the country. Costco, in particular, is known for selling gas at often hard-to-believe price points, which is what has gotten many car owners wondering: “Is this too good to be true?”
Costco has low gas prices due to its high sales volume. By selling more units at a lower profit margin, the company is still able to benefit financially from the sale of gas. Moreover, most of Costco’s profits come from memberships and merchandise sales, both of which benefit from low gas prices.
In this article, I’ll further explain the reason behind Costco’s low gas prices. I’ll also be delving into the quality of the fuel sold at their stores, along with whether you need a membership to get gas at Costco.
How Costco Keeps Gas Prices So Low?
Averaging at around 60 cents cheaper than what you’ll find at your average Mobil station, Costco gas has become a staple among car owners on a budget. Even though the prices might vary slightly from one location to another, Costco has been able to consistently provHow Costco Has Such Low Prices on Gas?
ide its customers with qualitative gas at prices that fall well below the national average.
While to some, it might seem odd how the company is able to make a profit out of its gas-selling endeavors while independent competitors are failing while charging much higher prices, you’d keep in mind that there are a lot of microeconomic elements at play here, making their approach profitable.
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Microeconomic Factors Affect Costco Gas Prices
The most crucial component allowing Costco to keep gas prices so low is economy of scale. The term describes the financial advantages that companies are able to obtain through the sheer size of their operations. As the number of units manufactured/sold increases, there’ll be a significant decrease in the output’s cost per unit.
This phenomenon relies on the division of fixed costs among as many units as possible. As a result, for this reason, many small, independently-run establishments find it hard to compete with the price point of large corporations.
Moreover, as the cost per unit decreases and the price follows, the number of units sold will increase, leading to a financial profit that allows Costco to keep the cycle running.
However, microeconomic phenomena aren’t the only factors that affect Costco’s low gas prices. The company’s strategic planning plays a role here as well.
Strategic Decisions Help Keep Costco Gas Prices Low
Costco doesn’t rely on gas as its primary source of profit. Instead, their most significant income sources include memberships and merchandise sales.
Therefore, even if their prices are still too low to reach the equilibrium point (thus, hindering the profit potential), they’re still predisposed to keep them at the same level in an effort to lure more customers into purchasing their memberships and merchandise. In short, Costco’s low gas prices are, in part, a well-thought-out marketing tactic.
Say you’re going to Costco to take advantage of their competitive prices. While you’re there, chances are you’ll remember a thing or two you have to purchase, leading you to enter the store and spend even more than you initially planned to.
Moreover, their membership program is highly profitable. For example, in 2019, Costco made $3.35 billion from membership fees alone, a sum that just keeps on increasing with each passing year. However, the strategy is lucrative beyond just the annual membership fees.
It creates a base of loyal customers, who want to make the most out of their membership cards, and as a result, turn to Costco for all of their day-to-day needs. That’s why you’ll find members buying everything from a jar of pickles to a new couch at their local Costco retailer.
Imagine how these purchases add up over time among all Costco membership card holders. Therefore, it’s understandable that the company insists on keeping the gas profit margins smaller than their potential, as the income made through additional memberships and purchases more than makes up for it.
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Is Costco Gas Qualitative?
As I briefly mentioned, Costco gas prices are so low that they sometimes have customers wondering whether they’re too good to be true. Surely, there must be something wrong with the quality of their gas in order for it to be so affordable, right? In reality, the opposite is true.
Costco gas is highly qualitative. The retailer is able to keep gas costs low due to macroeconomic and strategic planning components at play, but their prices aren’t an indicator of their fuel quality. Costco only sells top-tier gas.
Given that by now, I’ve gone over the many reasons why Costco can keep gas prices so low, it should come as no surprise that the quality of their fuel doesn’t have to be any different from that of qualitative, independently-run stations you’re used to purchasing from.
The fact that Costco only sells top-tier gas means that all its units need to abide by a particular set of regulations before being sold to the general public. Therefore, not only is Costco gas comparable to what you’ll find in most high-end stations, but in some instances, it might even be better.
The additives present in top-tier gas prevent build-up and optimize the overall performance of your engine. They maximize fuel efficiency while protecting the internal components from wear and tear.
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Disadvantages of Buying Costco Gas
However, just because the value Costco gas offers is unparalleled (given that the prices are competitive while the quality is excellent), it doesn’t mean that their fuel is the best choice for all owners. As with everything, there are some downsides to purchasing gas for Costco.
As I briefly mentioned, you often may end up spending more than you intended to when going out to buy gas. Sure, you’ll get more bang for your buck, but as you know, most of the items you end up buying on impulse you didn’t even need in the first place.
The same goes for membership cards. While marveling at how low Costco gas prices are, it’s good to factor the price of your membership, and what you spend on items you wouldn’t otherwise buy into the cost-reward analysis.
While sometimes you might still save money in the long run, sometimes you might just end up spending more.
Moreover, if time is an invaluable resource to you, buying at Costco might not be the best idea. As you can imagine, you’re not the only one rushing to take advantage of the retailer’s low gas prices. As a result, you might have to deal with long, tiresome lines that can turn a 20-minute gas run into a full hour ordeal.
However, if you’re organized and punctual when it comes to filling up your gas, you can always get around this issue by strategically choosing the best times to visit Costco in an effort to avoid the busiest hours.
Lastly, it’s essential to account for the time and effort (and gas) you’ll need to spend to access a Costco. If you’ve to drive an hour to get to your nearest retailer, the time and gas spent on the commute likely won’t justify the small savings you can make by purchasing at Costco.
At the end of the day, as long as you make a thorough cost-reward analysis before choosing your gas retailer, you’re guaranteed to find the best way to save money and time in the long run.
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Do You Need a Membership To Get Gas at Costco?
I’ve mentioned the cost of a membership in relation to Costco gas several times throughout this article. But do you really need a membership to get gas at Costco?
You need a membership to get gas at Costco. Therefore, if you’re looking to take advantage of the retailer’s competitive prices, you’ll need to invest $60-$120 in annual membership fees to access it.
Even though an extra $60-$120 a year on gas might not seem like much in the grand scheme of things, it’s still something you might want to consider when calculating how much you’ll be saving on gas by purchasing there.
Granted, by getting a membership, you’ll be profiting from other perks as well. However, if you’re only getting a member card for gas, you might need to factor it in.
If you want to compare prices with other local gas retailers and see whether a membership is worth it for yourself, you can insert your area’s zip code in GasBuddy for real-time information on fuel prices.
Depending on the type of membership card you end up choosing, the range of perks and benefits offered can differ. Generally speaking, you can expect at least a 2% discount on all qualifying purchases with special promotions from time to time.
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Costco is able to keep remarkably low gas prices by profiting off microeconomic and strategic components at play. Given that they’re a big retailer, they’re able to keep their cost per unit lower than their independent counterparts, which allows them to reduce prices as well.
Their low gas prices not only increase the number of units sold but also lure in more customers into purchasing their membership programs and merchandise, which are Costco’s primary sources of profit.
Costco gas is highly qualitative, protecting your engine along with all its components, and providing remarkable overall value.