It's no secret that Costco's gas prices are significantly cheaper than most other stations. Strathmore's gas is currently sitting at 177.9-179.9 cents per litre, while some Costcos are at an incredible 147.9 cents per litre — a 30 cent discount. But how is Costco able to offer such low prices?
Gas Buddy's Head of Petroleum Analysis Patrick De Haan explains that it's part of Costco's strategy to get more customers not only for their gas, but for their other goods as well.
"Costco's choice is to sell at a lower price to likely bring more people to their location where they are also more likely to go inside the wholesale club and buy other items at a higher margin. So it's Costco's way of taking less at the pumps in order to get you to their store, where you're likely to go in and buy other items," he said.
Costco is still able to operate on a profit for gas, but depending on market pricing there may be times where it's a net zero or even a loss for them to sell so cheap. However, this is very rare and they usually make a slim profit. If Costco wanted to mitigate this problem, they could sell their gas around 10 cents cheaper instead of 30, and it would most likely still draw customers. However, De Haan explains that Costco intentionally goes so much cheaper than the rest to keep their customers happy.
"The goodwill gesture is not lost on Costco's customers, in addition it may do a lot to bring in additional people for a Costco membership."
If you've gone to Costco, you've probably seen a huge lineup at their gas stations. Because of their cheap prices, they are actually one of the fiercer competitors in the fuel market. With how much gas they're able to sell, Costco has become an industry giant, which gives them a lot of leverage when negotiating with providers.
"Generally, if you're a distributor or refiner Costco is very desirable because they sell a lot of gasoline. So that gives Costco more negotiating power on what they're willing to pay for gasoline."
Overall, Costco's system seems to be a win-win, as they can keep getting more customers, while the customers can enjoy some much needed relief from the outrageously expensive gas prices we've seen recently.
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