The warehouse club has used cheap gas to drive membership sales and visits. It has a new plan for the age of EVs.
Gasoline has been a major driver for Costco.
The warehouse club sells it to members at prices that generally beat any other gas station. That’s a pretty big advantage for the warehouse club, especially over the past few years when gas prices have been high and overall inflation has top of mind for consumers.
Costco (COST) – Get Free Report not only sells gas at prices that are lower than rival gas stations, it makes money doing it. Chief Financial Officer Richard Galanti discussed the subject during his chain’s second-quarter-earnings call.
“Gas has been a relative blessing as well. It’s a profitable business. It is volatilely profitable,” he said. “Sometimes it’s more than — and sometimes, it’s less. But overall, it’s a profitable business.”
The CFO made clear that gas sales are rising, providing another huge benefit to Costco.
“It’s given us an additional competitive advantage of getting people in the door, if you will,” he said. “I think it was this last summer into early fall where I’ve given some numbers where our gallon sales increases in the U.S. were up in the mid-to-high teens compared to darn near flat for the U.S. population as a whole,”
Gas has been a major weapon in Costco’s arsenal, but now rising sales of electric vehicles could put that edge at risk.
A person fills up gas cans at a Costco.
Image source: SAUL LOEB/AFP via Getty Images
Costco Has a Plan for the Rise of EVs
Electric vehicles make gas stations obsolete, and while Costco could add EV chargers, those won’t be the draw that cheap gas is.
In addition, while Costco’s massive gasoline-sales volume gives it some pricing advantages over its rivals, the same won’t be true when it comes to electricity.
R5 Capital Analyst Scott Mushkin asked Galanti how Costco planned to handle the eventual slowing demand for gas that the growth of EVs should prompt
“And just curious, and maybe this is a silly question. What happens with that gas business, especially in California with the push to EVs?” he asked.
Galanti, who usually is very direct, answered the question with perhaps a bit more humor than he usually uses.
“Yeah. It’s a long road ahead. At some point, we only have 11 car washes. So we have plenty of room for car washes 30 years from now,” he said.
Car washes may not be as big a draw as cheap gas, but if they’re priced below market rates, they could be a traffic driver. The CFO, however, does not see this as a problem his company will have to deal with anytime soon.
“But at the end of the day, we think it’s a very long road. It’s not happening in the next few years. And the fact that we’re still taking such market share relative to U.S. gas gallons in general is a positive,” he added.
“So it’s a question, but not — I think it’s a question that we can defer for five or 10 years, frankly.”
The chain’s gas stations are members-only and generally operate 24 hours a day. Not all of the warehouse club’s locations feature gas stations, but the majority do. All Costco gas stations have one-way traffic flows, which the company explained on its website.
“Costco’s approach to fuel is the same as inside the warehouse – high volume and low prices,” the company said.
“One-way traffic makes it easier to get in and out of our stations quickly. Our extra-long hoses allow fueling from either side of the vehicle, so there is no need to be concerned with which lane to choose.”
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