Costco Aims to Fuel Sales Growth with Discount Gas

CostcoCostco (COST) will soon start selling gasoline at its Lincoln Park location in Chicago -- just the latest among many of its warehouse stores to add gas pumps. As Costco looks for new ways to compete with warehouse club operators including BJ's Wholesale Club (BJ) and Sam's Club (WMT) in addition to large retailers like Walmart, Best Buy (BBY) and Target (TGT), Costco can gain new members and drive higher traffic to its stores by expanding its fuel sales.

We currently maintain a $67.36 price estimate for Costco's stock, around 25% higher than the current market price.

High Gasoline Prices Present an Opportunity

We believe that selling cheaper gas is a great way to bring in new members who will eventually spend in the stores. Since people can't buy Costco gas without a membership, and given that gas prices currently range from $3.75 to more than $4.40, drivers are very price sensitive and motivated to sign up.

To bring in customers, Costco typically prices gasoline at 6 cents to 12 cents below the market price. We believe Costco's move to sell more gas at very low margins could drive membership growth and lead to an increase in incremental sales at Costco stores. Costco operates on a warehouse club model under which it charges an annual membership fee to customers and, in turn, offers deep discounts on selected merchandise. Members pay annual fees of $50 to $100 to shop in its stores.

See our full analysis for Costco stock here

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In the Seattle area, Costco gas is less expensive that most gas stations around. The only time I see cheaper gas is when a radio station is having a contest at a gas station. Costco gas seems to be better quality as well. I wish they got into refining.

July 18 2011 at 11:53 PM Report abuse rate up rate down Reply

You are really something when you say your px is 25% higher than the current px;
You havent looked latley////
Px is 79.00 not 59.00
get your glasses fixed;

July 15 2011 at 1:58 PM Report abuse rate up rate down Reply

Another brilliant move my the best discount company on planet earth! Keeping the gas prices that low will surely bring in more store traffic.

July 15 2011 at 1:00 PM Report abuse rate up rate down Reply
1 reply to billdollar's comment

prolly chinese gas....hahaha

July 16 2011 at 4:47 PM Report abuse rate up rate down Reply

Wow!! A whole 6-12 cents less??? I guess now I can buy that Porsche I always wanted! To get me to sign up again, I'd expect at least a 50 cent discount per gallon PLUS getting rid of the NON-MEMBERS waiting in line! Idk about any other Costcos, but the Costco Gas in Brick NJ doesn't require membership, although they claim that, just to get you to sign up.

July 15 2011 at 12:36 PM Report abuse rate up rate down Reply

I have been buying my gas at COSTCO for about 3 months now, and you can save money. My car takes premium(VW GTI) and at COSTCO it's $ 3.93 a Gallon. Premium(93 octane) in the Chicago area averages $4.19 a Gallon.

July 15 2011 at 12:04 PM Report abuse rate up rate down Reply

I joined Costco mostly for the gas savings... and am considering turning in my membership card. I get my gas cheaper at the grocery store near my office or at several off-brand stations not far from Costco. The savings at the grocery store is usually 4-6 cents less than Costco and the off-brands are 10-15 cents lower. And yes, I filled in a Customer Comment Card at Costco 5-6 weeks ago but I never got a reply or acknowledgement. This article looks like a marketing ploy by Costco and the facts are not true. Gas is easily found elsewhere for less money! Do I sound frustrated?... I am!

July 15 2011 at 11:50 AM Report abuse +1 rate up rate down Reply

I buy gas at Costco 3 times a month. Worth the wait.

July 15 2011 at 11:25 AM Report abuse rate up rate down Reply

This article shows an amazing lack of research, no research beyond his neighborhood Chicago Costco. They have been in the gas selling business about a decade. My research on the subject? Early in the past decade, my ex-wife worked for the small engineering firm in Portland, Oregon who designed and built the them. As a former newspaper publisher, if an article like this was run past my desk.......someone would have been looking for a new career.

July 15 2011 at 11:16 AM Report abuse rate up rate down Reply

At our Costco in NY, they sell gas to everyone. Don't have to be a member of Costco.

July 15 2011 at 11:09 AM Report abuse rate up rate down Reply

Most of the gas today is discount gas you cant get any milage out of it and if you dont use it right away it evaporates.

July 15 2011 at 10:56 AM Report abuse +1 rate up rate down Reply
2 replies to thagrus's comment

sorry, but you are simply wrong. there are only about 6-7 refiners in this country. so, no matter where you buy gas, you are getting it from one of these refiners. i only buy gas at independant stations (no brand affiliation). i have asked whose gas i'm buying. one station told me that 95% of the time, its texaco. the other 5% of the time its exxon. another station i buy from told me that they get there gas from conoco/philips.
so, as i was saying......if you buy your gas at independant stations, you are always getting a major brand of gasoline.
this information came directly from one of my customers....who works at a refinery.

July 15 2011 at 11:34 AM Report abuse rate up rate down Reply

....and most definitely absords H2O....thanx gov man mandates

July 16 2011 at 4:48 PM Report abuse rate up rate down Reply