Costco Wholesale Corporation

NASDAQ Global Select
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Somewhat Bullish +50

How Costco sells such cheap gas

AI-generated analysis

📈 Costco's gas stations have never seen higher demand, with some locations requiring multiple tanker truck deliveries daily to avoid running dry.

💰 Gas prices at Costco routinely undercut local competitors by around 30 cents per gallon, making it a destination for bargain hunters despite long lines.

🐔 The low price of gas is part of Costco's strategy to drive foot traffic into warehouses, where about half of the customers who fill up end up shopping.

💵 Unlike independent stations that rely on high markups, Costco makes only a few cents profit per gallon and relies on membership fees for roughly two-thirds of its profit.

📉 When gas prices are high, Costco sells more volume but sees its overall profit margin squeezed because gas is one of its lowest-margin products.

🛒 High gas prices have led to increased foot traffic at warehouses, resulting in a 5% increase in store visits and higher spending per customer.

🍗 Costco leverages low-cost items like $4.99 rotisserie chickens and discounted meat/eggs to encourage customers to navigate the aisles and buy more.

📊 In 2025, Costco brought in $2.3 billion less in gas sales than the previous year due to cheaper prices, yet it remains a key driver of overall sales at 10% of total revenue.

🗣️ CEO Roland Vachris noted that customers are stretched financially but found comfort in Costco's competitive pricing during this period.

📉 The stock fell nearly 4% on Friday as investors and analysts remained skeptical about whether Costco can maintain these gains when gas prices fall again.

🤝 CFO Gary Millerchip described the current situation as a healthy barometer for long-term growth, emphasizing that building loyalty through value is a great strategy over time.

🚛 The surge in demand has forced Costco to call in tanker trucks multiple times a day at many stations to meet customer needs.

📉 Gas prices have surged above $4 nationwide and above $6 along the West Coast, prompting customers to top up tanks out of concern for future costs.

🏢 Costco's massive scale and membership model allow it to operate differently than small, independently owned gas stations that need higher markups to cover overhead.

📉 When gas prices are low, Costco benefits from lower volume but higher margins on other products, whereas high prices squeeze margins despite increased sales.

🛒 Customers who use Costco's gas stations typically spend more with the company in the warehouse, driving greater loyalty and future revenue.

📉 The company extended discounts on meat and eggs to capitalize on the opportunity of members dealing with higher gas prices elsewhere.

📉 Analysts were skeptical about the sustainability of these gains, fearing that momentum might fade if gas prices drop again.

📉 Costco's strategy involves selling most products at or just above cost, similar to its approach with gasoline, to drive volume and membership retention.

📉 The company believes that even if gas prices fall, the momentum built in recent months can continue to support long-term growth.

📉 Gas stations struggle to make money when prices are high because customers buy less, keeping a cap on what stations can charge.

Bullish Signals
  • Costco's gas stations have become America's destination for cheap gas, routinely undercutting local stations by around 30 cents a gallon.
  • A significant number of Costco members filled up for the very first time over the past three months due to high prices and competitive value.
  • Despite lower margins on gas, Costco leverages its massive scale and membership model to drive profit, with membership fees accounting for roughly two-thirds of the company's profit last year.
  • Record demand at gas stations drove foot traffic at stores up around 5%, leading members to spend more in the warehouse.
  • Costco extended discounts on meat and eggs to capitalize on high gas prices, investing in increasing value to members during a challenging economic period.
  • CEO Roland Vachris noted that competitive prices provide an advantage when customers are stretched financially, building loyalty for future growth.
  • CFO Gary Millerchip described the current trend as a 'good, healthy barometer of long-term growth' for the business.
Risk Factors
  • Gas prices falling caused the stock to drop nearly 4%, indicating investor skepticism about maintaining momentum once fuel becomes cheaper.
  • High gas prices squeeze Costco's overall profit margin because gasoline is a low-margin product, subtracting two-tenths of a percentage point from gross margins last quarter compared to adding one-tenth when prices were under $3.
  • Costco brought in $2.3 billion less in gas sales in 2025 than the year before because prices got cheaper, reducing revenue from this segment.
  • Analysts expressed skepticism about whether Costco can maintain its momentum once gas prices decrease, noting that trends favoring the company reverse when fuel becomes cheaper.
  • The stock fell nearly 4% Friday as investors reacted negatively to the news that fuel prices began to fall.
Full Analysis
Costco has become a primary destination for consumers seeking lower gas prices as fuel costs surge above $4 nationwide and exceed $6 on the West Coast. During its recent quarterly earnings call, the company reported that demand at its 747 gas stations was so high that it frequently had to dispatch tanker trucks multiple times daily to prevent running out of fuel. While most independent gas stations operate with a markup of 25 to 35 cents per gallon, Costco undercuts local competitors by approximately 30 cents per gallon while still maintaining a small profit margin of a few cents per gallon. This strategy is supported by the fact that membership fees account for roughly two-thirds of the company's total profit, allowing Costco to sell gasoline at or near cost as a loss leader. The low price of fuel serves as a strategic driver for overall business performance, with about half of customers who fill up at the gas station subsequently visiting the warehouse. This increased foot traffic has led to a 5% rise in store visits and higher spending per customer, particularly on high-margin items like rotisserie chickens sold for $4.99. Although high gas prices squeeze Costco's overall profit margin because fuel is a low-margin product—subtracting two-tenths of a percentage point from gross margins last quarter compared to adding one-tenth when prices were under $3—the company views the resulting increase in customer loyalty and sales volume as a net positive. CEO Roland Vachris noted that gas was mentioned 72 times during the earnings call, highlighting its significance, while CFO Gary Millerchip emphasized that investing in value for members during high-price periods builds long-term growth potential. Despite the operational success and strategic benefits of the gas stations, which contributed to 10% of overall sales last year, investors reacted negatively to the news as fuel prices began to fall, causing the stock to drop nearly 4%. Analysts expressed skepticism about whether Costco can maintain its momentum once gas prices decrease, noting that the trends favoring the company reverse when fuel becomes cheaper. Nevertheless, management remains hopeful that the loyalty built during the high-price environment will sustain growth even if margins on gasoline tighten again in the future.