Costco has shared that it raises gas prices more slowly than it raises them.
Basically, Costco takes a lower margin on gas sales while prices are rising, but makes that up as they fall.
Former Costco CFO Richard Galanti defended that practice, discussing the warehouse club’s gas business during its second-quarter 2022 earnings call.
“As prices went up or went, even went down a little bit, they didn’t go down as fast as perhaps they could have been, which gives us, in our view, an ability to make a little more and still be the most competitive,” he said.
Now, with gas prices rising due to the war in Iran, Costco’s current CFO, Gary Millerchip, shared some key news on the company’s pricing strategy. He also shared how higher gas prices drive member behaviour.
ALSO READ: Why Costco’s gas prices won’t rise as fast as traditional gas stations
Costco’s gas drives member visits
Shopping at Costco’s warehouses saves members money.
Costco’s prices were 21% lower than Walmart’s, which were used as the baseline for a recent Consumer Reports study of grocery prices.
Consumer Reports commissioned the research from Strategic Resource Group (SRG), a retail- and grocery-industry market research company in New York.
“When SRG compared prices on baskets of commonly purchased items at mainstream grocery chains in six regionally representative cities across the U.S., the difference between the highest- and lowest-priced in each city was more than 33%. And when the comparison included the warehouse clubs like Costco and specialty grocers like Whole Foods, the price differences were even more significant,” the consumer advocate shared.
This study highlights Costco’s consistent pricing advantage across the U.S., showing how warehouse clubs maintain lower prices even compared with major discount grocers.
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That means that anything that entices Costco members to visit its warehouses saves them money.
“Generally speaking, we see about half of members who will shop at the gas station will also cross-shop at the warehouse,” Millerchip shared during Costco’s second quarter 2026 earnings call.
Economics professor Alan Gin from the University of San Diego believes the motivation for Costco’s aggressive gas price strategy has to do with how Costco makes its money.
“The bulk of their profits come from memberships,” he told ABC News.
Gin says up to 70% of Costco’s profits come from the $65 or $130 that customers pay for the right to shop at its warehouses.
“They can afford to take some losses on the chicken and the hot dogs, and now maybe even the gas, if that gets people to sign up then for these memberships,” Gin said.
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Gas prices are rising
“The nation’s average price of gasoline has risen 23.2 cents over the last week and stands at $3.68 per gallon, according to GasBuddy data compiled from more than 12 million individual price reports covering over 150,000 gas stations across the country,” the gas pricing website reported.
Prices have been climbing quickly.
“The national average is up 80 cents from a month ago and is 66.1 cents per gallon higher than a year ago. The national average price of diesel rose 34.0 cents in the last week and stands at $4.951 per gallon,” GasBuddy added.
Costco is monitoring the situation.
“It is early days to know what the impact longer term might be from events in the Middle East at the moment. But generally speaking, if gas prices start to increase, then we tend to see our value proposition resonate better with members, just because obviously we want to be the pricing authority on gas,” Millerchip shared.
He also noted that higher gas prices changes member behaviour.
“And so when prices are higher, that will tend to cause members to maybe take the extra mile that it might involve to get to the gas station because of the incremental value they see there. But, obviously, we will have to see what happens with gas prices over the coming months there,” he added.
Lower gas prices have been a key part of Costco’s strategy for decades.
“Costco, for example, is typically 20 cents a gallon below the market average,” Tom Kloza, the global head of energy analysis at IHS Markit’s Oil Price Information Service told CNN.
In times of higher gas prices, consumers seek out savings.
“People are seeking out the clubs because of the gas,” Michael Baker, a retail analyst at D.A. Davidson told CNN. “It’s U.S. consumers’ nature to go out of their way for lower gas prices.”
Related: Sam’s Club fixes problem that’s a major pain point at Costco
