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 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?
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.
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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