Gas prices keep going up, and that’s unlikely to change, unless the ongoing war in Iran ends.
“The national average for a gallon of regular gasoline is up 10 cents from last week and one dollar since last month,” according to data from AAA.
Prices have been driven higher by the war.
“Crude oil prices remain high as the Iran conflict nears the 4-week mark. The national average could reach $4/gallon in the coming days for the first time since August 2022. Gasoline demand is also on the rise as spring break season continues, another factor in rising pump prices,” the auto club added.
High gas prices have a deep impact on how Americans feel about the economy.
“Pretty much everyone felt worse about the economy and household finances in March as the Iran war pushed up gas prices and threatened the outlook for the future. That’s according to the University of Michigan’s survey of consumers Friday [March 29], which showed consumer sentiment dropped 6% in March from the month before to its lowest level since December,” Investopedia reported.
That creates a short-term opportunity for low-cost gas providers, including Costco. The warehouse club, however, has chosen to make a longer-term bet that it can grow its memberships based on gas sales.
Gas drives membership for Costco
“The impact is really starting to add up when it comes to the increase in gas prices. And unfortunately, it doesn’t look like there’s necessarily going to be any slowdown just yet,” Patrick De Haan, a petroleum analyst at GasBuddy, a gas savings software company, told Investopedia.
Costco, he noted, offers some relief to consumers.
Some gas stations offer lower prices than others, especially those at wholesale membership clubs, such as Costco, Sam’s Club, and BJ’s Wholesale Club,” De Haan said.
Costco has used low-priced gas to drive memberships.
“Generally speaking, we see about half of members that will shop at the gas station will also cross-shop at the warehouse. And obviously, as [Costco CEO] Ron [Vachris] mentioned, it is early days to know what the impact longer term might be from events in the Middle East at the moment,” CFO Gary Millerchip said during Costco’s second-quarter earnings call on March 5.
For most members, Costco is not the closest gas station to their house, so they have to weigh the savings — which may include saving money shopping at the warehouse club — against the cost of driving to the store.
“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,” Millerchip added.
Related: History of Costco: Company timeline and facts
Costco doubles down on gas
To grow its gas business, Costco has decided to add standalone gas stations.
Costco’s first standalone gas station in the U.S. is expected to open to the public by the end of June, a spokesperson from Mission Viejo, California, the site’s location, confirmed to C-Store Dive.
At least one second standalone station is scheduled to open in Honolulu in 2027, according to C-Store Dive.
Costco hasn’t publicly responded on the openings.
Standalone gas stations won’t drive incremental sales for the chain, but they could drive membership sales. In theory, people who live near the standalone gas stations could make up the cost of their $65 Gold membership just on gas purchases.
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“You save approximately 20 cents a gallon at Costco over other local vendors,” David Schwartz, who, with his wife Susan, authored “The Joy of Costco,” told CNBC. “That’s something we have seen time and time again across the country.”
So, that’s $1 in savings, on average, for every five gallons of gas you buy. That means if you buy 325 gallons of gas per year, you pay for your membership in savings.
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Experts weigh in on Costco’s move
GlobalData Managing Director Neil Saunders thinks Costco is making a smart decision, within reason.
“Anyone who has been to a Costco knows that the gas station is one of the most crowded areas, often with long lines that back up into the parking lot and cause snarls. A fair proportion of visitors are there just for gas. It makes sense, therefore, to have stand-alone stations in select areas both to take the pressure off store-based sites and to give the customer more convenience,” he posted on RetailWire.
He thinks the move will be additive for the chain.
“This being Costco, it does not have to fear that such a move will reduce traffic to its stores: they are magnets in their own right,” he added.
Brad Halverson, who has 30 years of brand marketing experience, agrees.
“It’s a good strategy on two fronts — current Costco members are reminded of their benefits and why they joined, and it’s an opportunity for Costco to grow their highly profitable membership base. Potential new members doing the quick math on joining for access to gas stations is if each fill trip saves them $6-$7 over other stations, annual membership is paid for in only 10 trips,” he wrote.
Scott Benedict, another RetailWire Brain Trust member who has more than 25 years of retail experience, agrees with the move.
“Higher gas prices may actually amplify this advantage. When fuel prices rise, consumers become more price-sensitive and more willing to seek out lower-cost options — something that historically benefits Costco,” he posted.
Related: Costco sees shift in member behavior
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