Costco has cheap gas (and that’s not all you need to know)

After joining Costco (price)- Get Free Report (or its rival Walmart’s (WMT)- Get Free Report Sam’s Club) mostly because both warehouse club chains offer tremendous value at low prices. Although you might like the treasure hunt aspect of not knowing what’s on the shelves, and enjoy some side benefits (like home repairs, cars, travel, and a few other trades). , at its core are two things. Companies have built their business by selling products cheaply.

It’s a very simple relationship that anyone can understand. Paying $60 to Costco for a basic Gold Star membership gives you access to a warehouse stocked with mostly unmarked-up merchandise. Sam’s Club has a similar deal, and in both cases you’re paying to join, meaning the company is working hard to keep prices down and trying to offer great value.

Most of the time Costco tries to do everything it can to offer the lowest possible prices. even do.

This happens with just about everything the warehouse club giant sells, but it’s not how Costco approaches its gasoline business.

Costco’s Cheap Gas Can Be Cheaper (Sometimes)

When gas prices fall, Costco won’t cut prices at the same pace it raises them when prices are rising. This allows the company to recoup some of its lost profits by doing the opposite when prices rise.

Costco CFO Richard Galanti defended its practices in the warehouse club’s gas business. 2nd Quarter Financial Results Announcement.

“I think part of that story has been scrapped because it appears that not just us, but also supermarket retailers and other discount retailers who operate a number of gas stations, have been able to use it. ‘Prices went up or went – even a little bit, probably didn’t fall as fast as they could have, which in our view gives us the ability to make a little more and still be the most competitive.’ He said. .

Gas was actually Costco’s profit center, but Garanti defends it.

How Costco is using gas profits

CFO Financial results announcement Due to the current situation with gas profits, we are no longer able to raise prices in other areas within the warehouse.

“When it comes to gas, we’ve been talking about the profitability of gas in the last few quarters and even over a year ago. I believe, and certainly it could have used some of that to keep the price possible with some things.

It may not last forever, but CFOs openly admit it.

“Who knows what the new normal is? Will it make a difference? Probably. I don’t know,” he added.

Galanti explained that the company keeps gas prices low enough to be attractive to members and passers-by (who must join to fill up). CFO thinks Costco prices are low enough to win more market share.

“As we’ve mentioned a few times, gallon sales are strong and we’re holding onto market share. If U.S. gallon sales are about flat, you’re up 10%. Gallons are up 15%. ,” he said. “So we’re driving people into parking lots.”

Gas is a $30 billion business for the company, with total annual sales of $220 billion, he said.

“So it’s a big kahuna of all things,” he said of the company’s gas business.