Costco Uses Low Fuel Prices, Memberships to Offset Rising Gas

Costco Wholesale Corp. has kept gas prices below nearby retail averages across the U.S. and Canada, using discounted pump prices and member traffic to blunt the effect of higher crude and refining costs in recent months.

The warehouse chain sells fuel at thinner per-gallon markups and moves large daily volumes through hundreds of fuel stations at its warehouses. Those pump visits often lead members to make in-store purchases of groceries, electronics and other items.

Membership fees, including the standard Gold Star and the higher-fee Executive tiers, provide a steady revenue stream that supports lower retail prices. Costco reports consistently high renewal rates, and membership income represents a substantial portion of its operating income.

Costco keeps gas stations simple to speed vehicle flow, accepts membership cards and major credit cards, and adjusts local pump prices daily in response to wholesale market changes. Centralized purchasing and scale enable the company to react faster than many smaller stations and pass some wholesale savings to customers.

Rising wholesale gasoline costs can compress the company’s retail fuel margins until retail prices are updated. When margins tighten, Costco relies on membership revenue and the additional store purchases driven by pump traffic to help offset the pressure on results.

Discounted fuel has been part of Costco’s approach for years, combining low pump prices, high-volume sales and recurring membership income as elements of its strategy for maintaining shopper traffic during periods of higher fuel costs.