The Perk That Makes Costco Really Worth Joining

My wife and I joined Costco (NASDAQ: COST  ) this year. In doing so we joined more than 40 million others around the world who are willing to pay just to shop at the company's warehouse stores. With that membership comes a lot of privileges and perks. Near the top of the list is the money that we are saving on gasoline each year. It's the one perk that can really make a Costco membership worth the cost. 

  

Fueling savings
As of the end of last year Costco operated 548 warehouses in the U.S. and Canada. Of those locations, 414 had retail gas stations that offer members a discounted price on gasoline purchases. Lucky for me our local Costco is one of those locations with a gas station. Reason being, the discount on gasoline alone can easily offset my own membership fee each year. 

The other day when we purchased gas at Costco it was $3.11 per gallon. Other stations in the area surrounding Costco were charging, on average, $3.29 per gallon. That $0.18 per gallon savings can really add up. In our case it worked out to a nearly $2 savings to fill up our car. If that discount held throughout the year and we bought gas at Costco every other week we'd nearly offset our membership.

That's even before factoring in additional savings we get from using Costco' branded credit card and its 3% cash back on gasoline purchases at any gas station in the U.S. If we used the card on all our gas purchases over the past year that alone would have saved us the full cost of the membership and then some. Needless to say it's not hard to save enough on gasoline purchases alone to pay for a Costco membership.

Fueling membership
These savings are a big reason why Costco's gas stations are popular among its members. In fact, Costco gas stations pump out an average of more than $27 million in revenue per location. That's more than 10 times the sales of an average retail gas station in the U.S., which will typically have revenue of about $2 million each year.

Surprisingly, though, despite the discount, Costco actually makes money on gasoline sales. Its profits do fluctuate, but it is not a loss leader for the company. It can't afford to lose money on gas as it is actually a nearly $13 billion per year business for the company.

  

Still, the gas business is there because it brings people to Costco. On the company's last quarterly conference call with analysts and investors Chief Financial Officer Richard Galanti had an interesting quote about its gas business: "[C]learly, gas brings you to the parking lot." That's why the company spends a lot of time comparing its gas price to competitors to make sure its price is as low as possible. Galanti noted that at some locations the company will comparison shop three to four times each day to make sure its gas price is the best of the bunch. The company wants its members stopping buy and getting gas, so that they will renew their memberships each year.

Final thoughts
A Costco membership has a lot of perks, but its gas business is a real tangible example of the savings of being a member. We typically don't remember what we paid for a gallon of milk last month, but most of us do remember what we pay for gas because gas prices are so visible from the roadside. Being a Costco member helps many to not only lessen the pain at the pump, but frequent shoppers can actually more than offset their membership just from the savings from buying gas at Costco. It's the one perk that makes Costco really worth joining for so many members.

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Read/Post Comments (22) | Recommend This Article (46)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On August 09, 2014, at 2:29 PM, frmrfran wrote:

    .44 cents/gallon I saved last fill-up here on Oahu. Crazy to go anywhere else. Problem is even with 4 or 5 Costco's here there is not a time that they are not packed and gas lines long.

  • Report this Comment On August 09, 2014, at 3:32 PM, herky46q wrote:

    Another advantage is that Costco is a supplier of TopTier gasoline. Look up Top Tier gasoline to learn more about this quality standard.

  • Report this Comment On August 09, 2014, at 3:53 PM, Petehog wrote:

    I think the author is trying to say that he has saved 18 cents per gallon each time he's went to Costco

    But he's neglected something very important in the equation.

    Time.

    Each time you sit there and wait there, you are wasting time..

    If you're sitting there for 30 minutes trying to save 18 cents on gas, you're not getting a deal.

    Time is money.

    I say this because everytime I've looked over there, I see a sorry crowd of people parked and waiting and waiting and waiting.....

    and they are wasting time.

  • Report this Comment On August 09, 2014, at 4:31 PM, metro93 wrote:

    In Las Vegas, NV the price of gasoline at Costco is actually higher then I can buy at local gas stations. There is no bargain here!

  • Report this Comment On August 09, 2014, at 4:49 PM, Aquariuz wrote:

    In Texas, Costco is 3.17, Murphys is 3.18 and I get .15 off per gallon by using my Wal-Mart Card.

    Murphys FTW..

  • Report this Comment On August 09, 2014, at 5:35 PM, clchapman wrote:

    If Costco was on every street corner like other name gas stations I could see this being a way to save

    The nearest Costco to me is about 18 miles

    I have to exit off to get to it and then drive a mile or two on down the road to be able to turn and come back home

    Like most have said waiting in a line to fill up to save 18 cents is not worth it to me

    I compare this to people saying they clip coupons and run to 3 or 4 different stores and across town to save money

    You had all the wear and tear, the stress, and the time you really have not saved anything

  • Report this Comment On August 09, 2014, at 6:10 PM, HP54 wrote:

    I like Costco, personally, and have been an executive member for years.

    There are two Costco warehouses in my area and both have gas stations. I checked the prices and, as is typical, they vary - the store closest to me is charging 3.38 per gallon while the other Costco is charging 3.33.

    I find it a bit difficult to reconcile the fact that two Costco gas stations within 8 miles of each other, and in the same county with identical tax rates, are charging different prices (a 5 cent per gallon differential).

    I am also a member of BJ's, which is currently charging 3.39 per gallon and that store is less than a mile away from my house.

    The median price in my area is currently somewhere around 3.43 per gallon and BJ's always beats that median price.

    I wish I could say the same for Costco is as consistent as BJ's but I can't. Costco seems to play games with their pricing and, at times, I have found their gas prices to be higher than the median price in my area.

    Bottom line is Costco is generally outstanding, at least in my opinion, but I simply can't count on always paying less than the median price for gas where I live. I can, however, always count on waiting forever in line at my nearest Costco gas station, though.

  • Report this Comment On August 09, 2014, at 8:17 PM, tradesman0 wrote:

    The problem with getting gas at Costco is that you must use their credit card to do so. They don't take cash, check, or any other credit cards. That sucks! I pay for a membership, then they limit me by forcing me to get their credit card to get gas. At least Sam's takes other cards.

  • Report this Comment On August 09, 2014, at 10:35 PM, WOODLAND1954 wrote:

    TOO BAD COSTCO DOESN'T POST THEIR PRICES ON AAA-CA.COM . THEN THEY WOULD HAVE TO HAVE COMPETITIVE PRICING. AND NO...MOST COSTCO'S DO NOT HAVE THEIR PRICES NEAR THE ROADS. MOST ARE UP NEAR THE STORE ENTRANCE & ONLY WHEN THE STORE IS OPEN. BUT YOU CAN DRIVE UP TO THE PUMPS TO CHECK OUT THE PRICES. MOST OF THE TIME ...YES, THERE ARE LINES, BUT IF IT'S NEAR YOU, YOU SHOULD GO & SEE WHEN THE LINES ARE LIGHTER. NOT AT NOON! OR FROM 4PM ON.

  • Report this Comment On August 09, 2014, at 10:57 PM, dgries wrote:

    Strange pricing here in SW FL.

    Costco gas in Brandon is 312.9, but in Sarasota it is 338.9.

    At best Costco is near the low for the area, but is not the lowest. It happens to be the closest gas station to me, and never a wait.

    But, really, Costco, why is there a 26 cent difference for about 50 miles?

  • Report this Comment On August 09, 2014, at 11:49 PM, desuhu wrote:

    Well if Costco fuel stations are anything like Sams' Club, the local fuel suppliers will complain because they're giving a discount for being a member and they'll raise their price. You use to be able to get .06/gal. off fuel at Sam's, now its the same or higher than other places.

  • Report this Comment On August 09, 2014, at 11:49 PM, jessewp832 wrote:

    tradesman0 that is not correct. (Unless they are different rules in different areas). We do not have a Costco credit card and buy gas from them all the time. You do have to swipe your Costco membership first. We more than make up the membership cost by my wife filling up for gas there.

    Costco is awesome. Price is really good, sure you have to buy more, but their markup is smaller and you save alot. Surely there are some things that everyone can buy in bulk. Why not save money? They also have tons of samples and 1.50 giant hot dogs with soda. They also pay their employees a living wage.

  • Report this Comment On August 10, 2014, at 3:31 AM, gizzy wrote:

    The Costco here in Las Vegas sells gas higher than at a lot of other gas stations, and the lines are still long.

    For my family of 2, I never buy in bulk, so where would I save?

  • Report this Comment On August 10, 2014, at 4:37 AM, SuntanIronMan wrote:

    @tradesman0

    If you have any American Express card, it will work at the pump (not just Costco's AMEX card). But only AMEX, because Costco (in the U.S. at least) doesn't accept Visa, Mastercard, or Discover (because American Express gives Costco super low transaction fees).

    Costco's self-service pumps also accepts pin-based debit cards and the Costco Cash Card.

  • Report this Comment On August 10, 2014, at 7:00 AM, Mathman6577 wrote:

    Too bad (in spite of what the company management and the compliant media say) that the board of directors and management are pursuing an anti-capitalist agenda by supporting (and lobbying with your money) left-leaning candidates and policies. Any benefit gained by saving a few cents off gas is quickly evaporated by higher taxes and regulations.

    Assuming that you drive 30,000 mi a year with cars that get 25 mi/gal Costco will save you about $200 a year. Big deal.

  • Report this Comment On August 10, 2014, at 7:26 AM, SuntanIronMan wrote:

    $216 a year (given your annual miles driven and MPG example and the author's $0.18 per gallon in savings).

    But as for your last part... so worried about higher taxes, but think a family saving $216 a year at the pump is nothing? ... Okay, haha.

  • Report this Comment On August 10, 2014, at 7:39 AM, Mathman6577 wrote:

    Suntanironman: You completely missed the point of my comments. And thanks for the math lesson. If you carefully read I wrote "about $200".

  • Report this Comment On August 10, 2014, at 12:22 PM, Dickoz59 wrote:

    In Silicon Valley, CA, Costco gas prices are always well below the street price. Line ups can be long so the trick is to get there early in the morning.

    Add a $1.50 hot dog to the gas deal and it's unbeatable! :-)

  • Report this Comment On August 10, 2014, at 12:28 PM, Aukgalgg wrote:

    I always buy gas at Costco. If you go after 9am, when most folks are already at work, or mid-afternoon before they leave for home, then the lines are lessened. As another writer states, Costco accepts pin based debit cards also but, if you use the Amex, you also get a cash rebate yearly. You can always pay it down immediately if you don't want a card balance.

  • Report this Comment On August 11, 2014, at 11:51 AM, DCUDFlyer wrote:

    OBVIOUSLY this is only a good deal if (a) you live close to a Costco and/or (2) have time on your side. If these conditions are met, fuel savings at Costco greatly outweigh the yearly membership cost. Not an absolutel recommendation, just something to consider when weighing pros and cons of a Costco membership.

    Not a terribly complex article to digest, commentors.

  • Report this Comment On August 12, 2014, at 5:47 AM, Mathman6577 wrote:

    Thanks for the synopsis DCUDFlyer. Most of us can't read or think for ourselves so we need lots of help from the Costco worshippers.

  • Report this Comment On September 10, 2014, at 11:21 AM, Bookworm821 wrote:

    I love Costco, including their gas prices. I save a lot of money there, even though it's just me right now. I really saved a lot when my kids were at home but I can still save, as long as I have the space to store the extra.

    However, my main beef with Costco is the fact that they insist on pushing other crap on you while you're there. I mean really... we PAY them to shop there and they still have DirecTV people, mini blinds people, vegematic juicer people, and don't forget the sample ladies who yell at you as you go by as if it were some sort of carnival. Oh, and when you get to the checkout, they scan your card and try to upsell you on an Executive Membership and/or an American Express card.

    You would think that you could at least buy a peaceful shopping experience at Costco.

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