How can Costco undersell other gas stations by 23 cents a litre?
Published Wednesday, May 23, 2018 4:00PM PDT
Some drivers in Metro Vancouver have one rule when it comes to filling up the tank: they only stop for gas at Costco.
That's because Costco stations in the region routinely sell gas for significantly less than their competitors. On one day last week, the Costco in Langley was charging 138.9 cents a litre while most stations were charging 161.9 – a difference of 23 cents, or nearly $15 on a 65-litre tank.
"They're using it as a mechanism to attract consumers to the store," said Katherine White, a marketing professor with UBC's Sauder School of Business.
"They're attracting consumers to buy memberships and they're keeping consumers loyal."
The industry sometimes blames tiny profit margins for the punishing gas prices in Metro Vancouver, which raises some interesting questions: How does Costco manage? Is the wholesale giant taking a hit on gasoline, which it only offers to members who pay at least $60 a year in fees?
To the contrary, the company told CTV News its stations manage to turn a profit all on their own.
"We have taken many operating costs out of the equation – enabling us to reduce the sell price," a spokesperson said in an email. "Each one of our business units needs to stand on its own and generate sustainable profit margins."
For one thing, Costco stations aren't open 24 hours a day, which cuts down on labour costs. They also don't offer windshield cleaning supplies or sell mid-grade gas, which the company said saves "on infrastructure costs and the purchase of inventory."
Even more money is saved by only accepting payment on MasterCard or debit. And the strategy of offering lower priced gas seems to be working – the company said it sells 10 times more fuel than regular stations.
Not every driver wants to shell out for an annual membership, however. White said non-members can still potentially reap some of the benefits by filling up at nearby stations.
"As a competitor, they're probably going to want to lower their prices to compete," she said.
When the Langley Costco was selling for 138.9 cents a litre last week, the closest Esso offered gas at 149.9 cents, 12 cents cheaper than most stations in Metro Vancouver.
With files from CTV Vancouver's Shannon Paterson