Why Costco Is All Pumped Up

In the current issue of Business Week, they discuss how Costco (one of my favorite places to shop) is using the high price of gas to gain customers. The details:

The hottest price promotion at Costco stores these days is cheap gas. Costco is boosting store traffic by getting shoppers to line up for gas that's priced anywhere from several cents to 30 cents a gallon less than competitors'. Costco says it sold about $3 billion of gas in the fiscal year ended Aug. 28, up 30% from the year before.

The goal at the 227 U.S. Costcos offering gas is to beat prices at the five nearest gas stations, says CFO Richard Galanti. Costco keeps costs low by having customers pay at the pump (you need a membership card, which costs $45 a year). That eliminates cashiers. High volumes help, too: Stores often replenish their gas supply daily. Meanwhile, store traffic is climbing. "If you've already got them in the parking lot, chances are they'll run in to grab a rotisserie chicken for dinner," Galanti says. Costco says that every $1 spent at the pump generates up to 40 cents in additional sales inside the store.

Smart business. Plus, it saves the consumer money -- everyone wins. Yes, you may buy more inside, but you'll save there too.

No, I don't own Costco stock. I just love shopping there. Especially on weekends around noon. (free food samples) ;-)

Comments

[Financial Fruition]

So true. When I used to live in LA, the gas trucks came twice a day to fill up the tanks because they sold so much gas. And that was four years ago!

[mbhunter]

Taken by themselves, Costco's prices are usually a little lower.

BUT, they take very limited forms of payment at the pump -- debit transactions and Costco cash cards. They do not take Visa or Mastercard because the merchant account fees cut into their profit too much. (You paid $45 for the membership -- why should they make it any more convenient for you than they have to? They have your money already. Rant over :) ) This eliminates most, if not all, gas rebate cards. They do take American Express, but the 2% rebate one costs an extra $55/year for the premium membership, so you have to spend a lot at Costco -- over $200/month for a year -- just to break even.

The Wal-Mart Supercenter across the street usually is within a few cents of Costco for gas. If you have a gas rebate card (a 5% one) you get a rebate of almost fifteen cents per gallon (for $3 gas) elsewhere that you can't at Costco.

[pkthunder]

Interesting. My Costco Gas takes Visa/Mastercard. The first time I drove up I thought I'd have to use my debit card and give up my 5% cash back but I was pleasantly surprised. I suppose it's at the store manager's discretion? They sure don't take MC inside.

[m1999]

I have been an employee at Costco for the last 7 years...so I have just a few info. you guys might want to know :)

We accept debit cards/ costco credit card/ amex @ the gas pumps. You may also go inside the warehouse to purchase a Cash Card (min. $10 to max. of $1,000). Cash Cards can be used throughout the store and online. ANYONE can use this card. You can give it as a gift even to non-mebers. The only thing is...they can't use the cash cards for online purchases.

The Costco AMEX does not need to be paid in full by the end of the month and it is FREE.
Other credit cards charge you...this one gives you up to 1% ( and a LOT of members shop enough to break MORE than even).

Not all Wal-Mart stores have gas stations, Costco has grown it's gas departments.

I should be getting paid for this! lol

[zolie johnson]

Yes, you probably should be paid for promoting Costco, as if you aren't already.

Then you would be aware that the current percentage rate on your "convenient" costco amex is over 17% - not a bargain at all!
At that rate, Costco customers would be better off paying in full by the end of the day, let alone by the end of the month.

They funnel your savings -oh wait, maybe it's THEIR savings, since they don't have to pay the usual transaction fee - back to AmEx.

[FMF]

1. I don't have a Costco Amex -- I have a Blue Cash Amex -- made almost $500 on it last year. See: http://www.freemoneyfinance.com/2007/03/i_made_close_to.html

2. I ALWAYS pay off my card every month and thus NEVER worry about a percentage rate. Why would I worry about a rate when it's never an issue?

[tom]

That's why this country is in the finacial ruins. People live within your means. I agree I pay mine off every month so interest rate could be higher for all I care!