One thing to comprehend is how the gas station industry works. The gas you get at Costco is the same gas you get Chevron, Shell, Valero, or other service stations. The same truck would really, sometimes, deliver fuel to Costco Gas Station and then go to 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 like at a brand name gas station excluding a 1-5% additive difference, and in most cases 1-2%. Nevertheless the brand name stores must pay licensing and royalty fees to the brand name they operate under. Also the brand name stores should also purchase a certain % of gas from refineries owned by the brand name. In contrast, Costco only orders from them if they’re the least expensive refinery.
This is the reason you almost never see brand unattended stations. Branded stores make their money on the $1.99 overpriced bottle of coke, not from the gas. Even unattended, a branded station costs far more to function than 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 service stations charge much more than Costco? There is this misconception that Costco sells gasoline as a loss leader to draw in more members.
Yes, they wish to get more members, nevertheless the company does not deliberately generate losses at the gasoline stations. Costco buys their gasoline “off the rack” (Being 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 price is often the spot market price, which is pretty competitive from what other gasoline stations are paying for their inventory.
Depending on the location of the warehouse, they will likely usually comp shop 4 service stations (branded and independent) within a certain radius in the warehouse. Each morning, an employee will drive around and get the costs through the 4 gasoline stations they comp shop on. The prices are applied for 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 must change the cost on the sign to reflect that prices which are downloaded directly to the pumps.
The warehouses I worked at averaged 4 – 5 truckloads (approximately 8800 gallons each) per day, while a lot of the surrounding gasoline stations sell maybe 3 truckloads A WEEK. (Don’t feel that neighborhood gas stations usually do not make any money selling gasoline) Depending on the area, you may have branded gasoline stations that keep their price high, so Costco will definitely earn money on each gallon of gas even if they’re selling gas for 20-30-40 cents per gallon less than one other gas stations. And then there are other service stations which are aggressive on their pricing, and Costco will never beat that price but just match it. The stations that are aggressively pricing their fuel have a reliable margin on the product, in order that particular Costco is still making profits on each gallon of gas sold, albeit a smaller amount when compared to a Costco location with competing gasoline stations which are not as aggressive on the pricing. The majority of the neighborhood service stations that aggressively price their fuel do not take bank cards. For your typical Costco member, the gasoline continues to be cheaper at Costco simply because they use their Costco credit card using a 4% rebate on gasoline.
The only time which i have encountered where we deliberately were required to sell gasoline confused was during sudden spikes in gas prices. Since Costco turn their fuel inventory so quickly, each new delivery on the same day will be higher than the previous delivery earlier inside the day. The neighborhood gasoline stations are still selling gas they bought 3 days (even every week) ago, but now we’re selling gasoline at the same price or just slightly lower compared to neighborhood service station is selling but in a higher acquisition cost. During the times during the price volatility, comp shops of competing neighborhood gas stations may be done several times a day to find out if the other ewgoqq stations may have adjusted their prices. Costco may and can adjust their price in the midst of the day to take into account competitors’ price changes and to minimize losses.
Now, it works inversely as well. Because the gas prices in the wholesale market commence to drop, each subsequent load of gasoline is cheaper than the one received the day before or even earlier in the day. Because the neighborhood gas stations still have gas they bought at a higher 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 another “ancillary businesses” (pharmacy, food court, tire center, photo center, meat, bakery, optical, service deli) inside the ware