CNN

Here’s why gas is so cheap at Costco and Walmart

Nov 20, 2021, 3:55 PM

SAN LEANDRO, UNITED STATES - 2021/10/16: A driver pumps gas at a gas station of Costco in Californi...

SAN LEANDRO, UNITED STATES - 2021/10/16: A driver pumps gas at a gas station of Costco in California. In the United States, a lot of drivers like pumping gas at a gas station of Costco because its price is always lower than other gas stations. In the recent months, the gas price of Costco gas station was increased at the same time, the gas prices around the United States also increased and some drivers felt helpless. (Photo by Michael Ho Wai Lee/SOPA Images/LightRocket via Getty Images)

(Photo by Michael Ho Wai Lee/SOPA Images/LightRocket via Getty Images)

 (CNN) — Gas prices are skyrocketing, and Americans want to save at the pump. That plays right into the hands of Costco, BJ’s Wholesale Club and Sam’s Club.

The national gas price average jumped to $3.41 a gallon Friday, according to AAA, 61% higher than the average at the same time last year. The Biden administration has called for an investigation into whether oil and gas companies acted illegally to push up prices.

The spike has pushed more shoppers to rely on these chains to fill up their tanks, say the companies, retail analysts, and fuel experts. Gas prices at warehouse clubs can be as much as 30 cents lower than traditional gas stations, and the chains offer members coupons to use in their stores when they fill up. Gasoline sales at the warehouse clubs are an important part of their business and draw customers inside.

“People are seeking out the clubs because of the gas,” said Michael Baker, a retail analyst at D.A. Davidson. “It’s US consumers’ nature to go out of their way for lower gas prices.”

Costco, for example, is typically 20 cents a gallon below the market average, according to Tom Kloza, the global head of energy analysis at IHS Markit’s Oil Price Information Service. BJ’s says it’s 10 cents below average.

These companies are “winners when gasoline prices go skyward,” said Kloza.

Costco, Sam’s Club and BJ’s want you to fill up your tank in their parking lots and then go stock up on giant jugs of ketchup, boxes of snacks and clothing. (And why not buy a flat-screen TV or a new couch while you’re at it?) Their gas stations give these warehouse stores an advantage that many retail competitors can’t match.

Gas makes up around 10%, $20 billion annually, of Costco’s overall sales and 9% of BJ’s. Walmart, which owns Sam’s Club, does not disclose what portion of its sales come from gas.

Gas is a notoriously low-margin business, but retailers can make money from selling huge volumes of gas — even while charging much less than independent gas stations, said Kloza, adding that it’s not unusual for sales at a Costco location to reach up to 1 million gallons a month compared to an average of 80,000 gallons a month at typical gas stations.

Despite their big-brand names, the vast majority of Exxon, Chevron, BP and Shell gas statons are independently owned, so they aren’t able to make a volume play like wholesalers do. Although wholesalers are able to make a profit on gas, they’re not making much: Costco, for example, reported that gasoline has a lower profit margin than the rest of its business. Rising gas prices typically help Costco’s sales, but hurt its profits.

“When there are inflationary pressures and prices are going up, people look to save on gas,” said Richard Galanti, Costco’s chief financial officer. For every 100 people who come to Costco to fill up on gas, more than half go shop inside afterwards, he said.

Gas sales at BJ’s Wholesale Club jumped 20% during its most recent quarter ending October 30 compared with the same time a year ago.

BJ’s is growing market share in gasoline “in leaps and bounds,” CEO Robert Eddy said on a call with analysts Thursday. When gas prices hit over $3 a gallon, “members love us” and shift their gas spending to the club.

Gas discounts are a tool Walmart uses to encourage customers to sign up for Walmart+ memberships, which also offer free shipping and discounts on prescriptions.

Walmart said on Tuesday that it’s actively trying to keep gas prices down to attract customers worried about how much they’re paying at the pump, especially as federal stimulus benefits wane.

“Gas prices are a concern….They’re up dramatically versus a year ago,” Walmart CEO Doug McMillon said on an earnings call. “The customers had money [then]. And at some point, that’s going to come to an end.”

We want to hear from you.

Have a story idea or tip? Send it to the KSL NewsRadio team here.

CNN

Afghan relatives offer prayers during a burial ceremony near the graves of victims who lost their l...

Niamh Kennedy and Radina Gigova, CNN

At least 300 people killed by flash floods in Afghanistan

At least 300 people have died in flash flooding that has ravaged northern Afghanistan in recent days, the Word Food Programme said Sunday.

11 days ago

The Apple Store at Towson Town Center Mall in Maryland is pictured. Apple Store workers in Towson, ...

Jordan Valinsky, CNN

Apple Store workers in Maryland vote to authorize strike

Apple Store workers in Towson, Maryland made history by voting late May 11 in favor of authorizing a strike.

11 days ago

Smoke from wildfires blankets the city as a couple has a picnic in Edmonton, Alberta, Saturday, May...

Paradise Afshar and Sara Smart, CNN

Canadians evacuate due to wildfires as air quality deteriorates

Thousands across Canada were urged to evacuate from blazing wildfires on Saturday, and the smoke emanating from them could be another danger.

11 days ago

Salvage crew members work on the deck of the cargo ship Dali on Friday, May 10....

Nicole Grether and Gloria Pazmino, CNN

Crews could use explosives to demolish part of Baltimore’s Key Bridge

Crews are expected to execute a plan to use small explosives to break apart a massive chunk of the Baltimore bridge that collapsed.

12 days ago

The sun is rising with a flare over Korla, Xinjiang Uygur Autonomous Region, China, on May 10....

Brian Fung, CNN

Why tonight’s massive solar storm could disrupt communications and GPS systems

An unusual amount of solar activity due to a solar storm this week could disrupt some of the most important technologies society relies on.

14 days ago

A customer wipes sweat from their face as they work out on a treadmill inside a Planet Fitness Inc....

Nathaniel Meyersohn, CNN

Planet Fitness will raise its $10 membership plan for the first time in 26 years

Planet Fitness will raise the price of its “classic” membership from $10 a month to $15 for new members beginning in the summer.

14 days ago

Sponsored Articles

a doctor putting her hand on the chest of her patient...

Intermountain Health

Intermountain nurse-midwives launch new gynecology access clinic

An access clinic launched by Intermountain nurse-midwives provides women with comprehensive gynecology care.

Young couple hugging while a realtor in a suit hands them keys in a new home...

Utah Association of Realtors

Buying a home this spring? Avoid these 5 costly pitfalls

By avoiding these pitfalls when buying a home this spring, you can ensure your investment will be long-lasting and secure.

a person dressed up as a nordic viking in a dragon boat resembling the bear lake monster...

Bear Lake Convention and Visitors Bureau

The Legend of the Bear Lake Monster

The Bear Lake monster has captivated people in the region for centuries, with tales that range from the believable to the bizarre.

...

Live Nation Concerts

All the artists coming to Utah First Credit Union Amphitheatre (formerly USANA Amp) this summer

Summer concerts are more than just entertainment; they’re a celebration of life, love, and connection.

Mother and cute toddler child in a little fancy wooden cottage, reading a book, drinking tea and en...

Visit Bear Lake

How to find the best winter lodging in Bear Lake, Utah

Winter lodging in Bear Lake can be more limited than in the summer, but with some careful planning you can easily book your next winter trip.

Happy family in winter clothing at the ski resort, winter time, watching at mountains in front of t...

Visit Bear Lake

Ski more for less: Affordable ski resorts near Bear Lake, Utah

Plan your perfect ski getaway in Bear Lake this winter, with pristine slopes, affordable tickets, and breathtaking scenery.

Here’s why gas is so cheap at Costco and Walmart