Costco offers a weird mix of consistency and surprise.
Members know exactly what they will get in certain areas. The company always stocks the basics when it comes to groceries, household goods, and other basics.
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That experience never changes. You know you can buy the core grocery ingredients you need at home, but the other items each warehouse club stocks change regularly.Â
This changing inventory creates the “treasure hunt” aspect of Costco (COST) that keeps people coming back. You may go in looking to buy chicken, a toothbrush, and toilet paper, then leave with a canoe, a winter coat, and who knows what else.
For members, it’s an exciting mix of intrigue and predictability.Â
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You can count on the chain to meet your basic household needs while also knowing that you might find a great deal on something else. Members also benefit from offers like discounts on travel, gift cards sold below face value, and low-price gas stations.Â
A recent change to those gas stations has had a big impact for the company.Â
Image source: Kevork Djansezian/Getty Images
Costco expanded its gas station hours
Not every Costco warehouse offers a gas station, but the ones that do follow the same model. They don’t take cash, and all traffic flows in one direction. Each pump also offers a cord long enough to reach either side of the car.
Earlier this year, Costco quietly expanded the hours its gas stations operated, and that has been incredibly successful, according to CEO Ron Vachris.
“We continue to increase the overall value of our membership, including extended gas station opening hours and lowering prices on some key items such as eggs, butter, and olive oil. The combination of expanded gas station hours, new gas station openings, and lower prices at the pump have led us to having two of our all-time highest gallon weeks in the U.S. during the last month,” he shared during the chain’s third-quarter earnings call.
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He said that the change was pretty much immediate.
“The recent expansion of gasoline hours was a great indicator that the throughput for our members improved nicely, and we saw that immediately in gallon increases,” he shared.
Overall gasoline revenue dropped by low double digits, due to prices being down over the prior year.
Costco delivers impressive membership numbers
Low prices on gas have been a major membership driver for Costco. The chain has continued to deliver impressive numbers when it comes to renewals and new memberships.
“We reported membership fee income of $1.24 billion, an increase of $117 million or 10.4% year-over-year. Membership fee income growth was 11.4%, excluding FX, and the recent membership fee increase represented approximately 4.6% of fee income in the quarter,” shared CFO Gary Millerchip.
The chain also maintained its membership, but saw a slight slowdown in renewals.
“In terms of renewal rates at Q3-end, our U.S. and Canada renewal rate was 92.7% and the worldwide rate came in at 90.2%. As cohorts of new members from digital acquisition campaigns and warehouse openings in Asia move in and out of the calculation, there will continue to be some volatility in this number quarter-to-quarter,” he added.
Millerchip explained why the renewals in the past two quarters dropped slightly.
“The decreases in the renewal rates in Q3 versus Q2 were primarily attributable to sign-ups from a Groupon promotion in the fall of 2023, entering the renewal rate calculation for the first time this quarter,” he shared.
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Digital sign-ups are also a mixed blessing.
“Higher penetration of online sign-ups entering the renewal rate calculation also contributed to the lower renewal rate. These new digital memberships are a net positive as they grow the overall membership base and are generally younger members, but they also renew at a slightly lower rate, according to Millerchip.