With gas prices soaring, Americans looking to save at the pump are flocking to Costco in droves.
In its latest quarterly earnings report, the budget-friendly retailer described a “record-breaking” volume of sales in its gas business. Costco operates its own pumps attached to its retail locations, which members who pay $65 annually can use to fill up.
Like the food and goods inside Costco warehouses, the company’s fuel prices aggressively undercut the competition – good business sense as customers grapple with affordability. The spike in demand was so significant that its pumps required additional gas deliveries to keep fuel stocked in the last few months.
As the war in Iran continues to elevate fuel prices, the allure of cheaper gas could entice new members to sign up for their first Costco card. And existing members who previously only shopped in its stores are apparently now headed to the pump during their Costco trips, Costco CEO Ron Vachris said in the company’s call with investors.
“As events in the Middle East have had a significant impact on product supply and gas prices, our focus, as always, is to be there for our members by staying in stock and offering the best value,” Costco CEO Ron Vachris said in the company’s call with investors.
“The high consumer price sensitivity, which fueled these record volumes, also drove many members to use our gas stations for the very first time in the third quarter.” Vachris expects that more users visiting Costco at the pump means more in-store shopping, as customers who get gas at Costco tend to spend more on their everyday shopping.
For inflation-weary Americans, Costco’s savings at the pump are substantial. The retailer’s gas prices trend around 10 to 30 cents cheaper per gallon than the competition, and those savings are even more meaningful when fuel is expensive. Costco’s strategy is to keep gas prices low, driving sales volume up instead of making more from each transaction. Its fuel margins might be thin, but as its CEO observed, members who buy gas at Costco buy more of the retailer’s warehouse deals, from its famous $5 rotisserie chickens to home cleaning products.
Costco’s winning formula
Gas wasn’t the only thing selling at Costco in the last quarter. The retailer reported an 11.6% boost in net sales compared to last year and its paid membership program also grew by 4.1% in the quarter. Costco reported a 21% increase in digital sales and 37% more traffic to its website and apps in the quarter, an interesting highlight for a retailer known for its in-store experience. Other areas of double digit year-pver-year growth included its pharmacy business, gold and jewelry, home furnishings, tires and housewares.
The company also touted speedier checkout times and improvements to its digital membership cards during the quarter. In March, the company announced a pilot program that would allow employees to pre-scan items in customers’ carts while they wait in line, sending them to special pay stations and reducing wait times. In the new earnings call, Vachris said the company is launching the technology with new stores and incorporating it into the checkout process in the busiest locations.
Shoppers might appreciate a streamlined checkout process and a better app, but at the end of the day Costco’s identity as a high quality, low priced one-stop shop is the core of its business. “
“Our buyers continue to demonstrate their ability to adapt and are using their significant experience and expertise to try to reduce the impacts on prices for our members,” Vachris said. “Our goal is to be the first to lower prices and the last to raise them.”
