The real reason Costco's gas is so cheap

Costco is a shopper's paradise for consumers who want anything from rotisserie chickens to 4-foot tall wine glasses. A big draw for Costco shoppers isn't even found inside the store, though — it's at the edge of the parking lot. We're talking about the Costco gas pumps and the superstore's typically lower-than-average gas prices. Customers love this membership perk and Costco's climbing profit margins love it as well (via Reuters). 

The company's gas stations are incredibly popular, but just how do they manage to sell their gas at a reported average of about 21 cents per gallon (as of 2018) less than competitors, and are there times when filling up at Costco maybe isn't the best option?

For any doubters that Costco time and again is one of the cheapest places in the U.S. to buy gas, check out these facts: The Oil Price Information Service (OPIS) conducted a survey in 2017 and found that Costco regularly delivered cheaper gas than every major gas chain. In 2018, Costco dropped to second place, but only below Food 4 Less, and only by a fraction of a cent per gallon. Business Insider reported in 2019 that when it came to chains offering the cheapest gas in every state, Costco came out on top about 50 percent of the time. 

There are essentially two ways that Costco is beating the competition when it comes to the gas pump. First off, Costco customers are very loyal and the company knows this and markets everything under its roof — or in its parking lot — with this mindset (via Reader's Digest). Buying Costco gas, meat, socks, laptops, and all sorts of other products requires a membership, and people want to make the most of that membership — so they get their gas at Costco. On the flip side, those membership fees allow the company to offer goods and services at lower prices. It's a win-win. 

The second part of this strategy relies on the giant warehouse of goods beside the gas station. Customers who swing into Costco's parking lot to fill up on the cheap gas are also likely to go inside the store to spend more money, which also allows Costco to price their gas at less than the competition. It's similar to why they sell hot dogs for a buck, only the gas isn't priced so low that it becomes a loss leader. After all, oil prices tend to be a little more volatile than hot dogs. 

As for how Costco's cheap gas stacks up against the price of your Costco membership — this is where things can get a little dicey. A regular yearly membership at Costco will set you back $60 and according to Business Insider, you'll need to do a lot of driving if fuel is the only reason you want that Costco membership card. To come out on top you would need to fill up at least 35 times during the year, otherwise you could lose money in the long run. That's not the only downside to joining Costco just for the gas, either.

People regularly post their gripes about waiting in long lines for Costco gas on social media, and some lines have had wait times of up to an hour. The fact that they don't take cash — only debit, Visa credit cards, and Costco cash cards — may be confusing to newcomers and slow down those fill-up lines even more. Not everybody has a Costco right down the road from their house or work either. So it's important to keep in mind that driving miles out of your way only to fill your tank with Costco's cheap gas may be counterproductive if you're eating up those fuel savings just to get to the pump. 

None of this is to say that joining Costco for the fuel savings isn't going to be worth it. If you plan on taking advantage of the many benefits inside the store, do a fair amount of driving, and don't mind sometimes waiting to buy gas — by all means, go for it. 

There are, of course, other ways to save on gas, and plenty of grocery chains around the United States offer various types of gas rewards programs (via The Penny Hoarder). According to USA Today, Monday is the cheapest day of the week to buy gas because of the old rule of supply and demand going into effect on the days leading up to the weekend. Couple that knowledge with your local grocery store's gas rewards program and a cheap gas-finding app like GasBuddy, and you may just beat Costco at its own game.