For decades, Costco‘s gas stations have served a purpose beyond selling discounted fuel. They’ve been one of the retailer’s most effective traffic drivers, giving members another reason to visit a warehouse.
Once shoppers are inside, Costco’s famously effective “treasure hunt” merchandising strategy often does the rest.
Costco especially benefited from its competitive gas prices during its most recent quarter.
“The high consumer price sensitivity…also drove many members to use our gas stations for the very first time in the third quarter,” CEO Ron Vachris shared during the company’s earnings call.
“We believe this will drive even greater loyalty with these members in the future as members who use our gas stations typically spend more with us in the warehouse,” Vachris continued.
But Costco is now testing a new concept — standalone gas stations. And it might end up hurting the company in a surprising way.
Costco opens stand-alone fuel stations
Costco is testing a major departure from its standard formula with fuel stations that aren’t attached to a warehouse club store.
The company recently opened its first one in Mission Viejo, California, and has more planned.
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The move promises greater convenience for members and puts additional pressure on traditional gas station operators.
“If Costco were to open hundreds or even thousands of locations, it would change the gas/c-store landscape,” retail expert Mark Ryski told RetailWire.
But it also raises an important question: By opening stand-alone fuel stations, is Costco sacrificing one of its biggest competitive advantages?
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Costco’s secret weapon has never been gas
Costco has never made gasoline the center of its business. Instead, cheap fuel has functioned as a way to get members in the door.
Members routinely drive out of their way to save anywhere from a few cents to several dozen cents per gallon compared with competing stations.
Once they’ve filled up, many decide they might as well head inside to grab groceries, household staples, or one of Costco’s ever-changing seasonal deals. That additional spending is where Costco really benefits.
Stand-alone fuel stations may not do Costco much good
Having fuel stations outside of Costco’s warehouse club stores fits neatly into the company’s broader strategy.
Unlike many retailers, Costco has long resisted offering curbside pickup for store purchases, despite the popularity of the service elsewhere. That’s because Costco wants members walking the aisles.
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Shoppers arrive intending to buy a few necessities but often leave with gourmet snacks, electronics, clothing, or limited-time seasonal products they never planned to purchase.
Every trip inside the store creates opportunities for impulse purchases that simply don’t exist when customers remain in their cars.
Stand-alone gas stations disrupt that formula. Members can now enjoy one of Costco’s most valuable perks without ever setting foot inside a warehouse.
So while Costco may benefit from having an expanded fuel station footprint, it remains to be seen whether it’s worth it for the company to continue investing in stand-alone fuel stations.
If members begin treating Costco as a place to buy gas instead of a place to discover products, the company could lose out on some of the impulse spending that’s helped drive its impressive sales growth for decades.
Maurie Backman owns shares of Costco.
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