Costco's Sales Spike Amid Record Demand for Gas

In its 50-year history, Costco has never seen such demand for gas. Many of its stations have been so overwhelmed that they've had to call in tanker trucks multiple times a day to avoid running dry, Costco said this week during its quarterly earnings call. As prices have surged above $4 nationwide — and above $6 along the West Coast — Costco has become America's destination for cheap gas. Well, relatively. Costco routinely undercuts local gas stations by around 30 cents a gallon.

Costco says about half of its filler-uppers end up walking into a warehouse. As a record number of members visit Costco's gas stations, foot traffic at stores increased around 5 percent. And customers are buying more when they shop, too.

"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," said Costco CEO Roland Vachris on a conference call with analysts Thursday.

Total Retail's Take: This news is further proof that Costco's membership model gets stronger when consumers feel financially pressured. The warehouse club sells fuel at very thin margins — a few cents per gallon — but the goal isn't to make money on gas itself. The goal is to get people into the Costco ecosystem. Management noted that many members used Costco gas stations for the first time during the quarter within the last month, and they expect those visits to translate into more warehouse shopping. Most retailers cannot afford to consistently underprice competitors on fuel. Costco can because membership fees generate a large portion of profits; the company's scale allows enormous fuel purchasing power; and it is willing to accept lower margins to drive loyalty.

Costco continues to demonstrate pricing power, customer loyalty, and membership strength when consumers are looking for ways to save money. Record gas volumes are another sign that Costco is becoming a bigger destination for value-conscious shoppers, which can support long-term revenue growth and membership retention even after fuel markets stabilize.