For the entirety of its 50-year existence, Costco has never encountered such a surge in gasoline demand.
A considerable number of its fuel stations became so overwhelmed that they required fuel deliveries multiple times daily to avoid depletion, Costco revealed this week during its quarterly earnings report. An increasing number of patrons are opting to purchase just enough fuel to fill their tanks, likely due to concerns about future price fluctuations.
As prices nationwide surged past $4 per gallon, and even exceeded $6 on the West Coast, Costco emerged as the prime destination for affordable gasoline in America. That is, relatively speaking. Costco consistently undercuts local gas stations by approximately 30 cents per gallon.
This is an appealing offer at any time, though the lengthy queues can sometimes deter customers, particularly when fuel costs are low. However, not currently: a significant portion of Costco members filled their tanks for the first time in the last three months, according to the company’s earnings call.
How — and why — does Costco offer gasoline at such a reduced price? It’s largely about the margins. Well, sort of.
Not a “Loss Leader”
Costco actually generates a profit from gasoline sales, albeit a small one of a few cents per gallon. This is considerably less than the 25-35 cent markup that most gas stations typically apply.
Unlike most independent gas stations, which are often small businesses that might include an attached convenience store or repair shop, Costco leverages its scale and membership model to achieve profitability.
Last year, membership fees accounted for roughly two-thirds of the company’s earnings. Costco sells most of its merchandise, including gasoline, at cost or marginally above, occasionally even below cost, as exemplified by its famous $1.50 hot dog and soda combo.
Competing gas stations rely on their markups to cover operating expenses and maintenance. When gasoline prices escalate, consumers tend to purchase less, which inherently limits the amount these stations can charge.
This is precisely why, ironically, most gas stations struggle to turn a profit during periods of high gasoline prices.
Costco faces a different challenge: when gasoline prices rise, Costco experiences an increase in fuel sales. However, because gasoline is a product with very thin profit margins, the company’s overall profitability is reduced. The opposite occurs when prices are low.
Last year, when the average price per gallon was below $3, gasoline contributed approximately one-tenth of a percentage point to the company’s gross margin. In the most recent quarter, gasoline detracted two-tenths of a percentage point.
Nevertheless, this is a favorable predicament to face. Costco reported that in 2025, it experienced $2.3 billion less in gasoline sales compared to the previous year, attributable to declining prices.
Costco operates 747 gas stations, which contributed 10% to its total sales last year.
The Chicken Driver
Where do the chickens come into play?
Costco states that approximately half of their fuel customers also visit the warehouse stores. With a record number of visitors heading to Costco’s gas stations, store traffic has seen an increase of about 5%. Furthermore, customers tend to make more purchases when they shop in-store.
“We believe this will foster even greater loyalty from these members in the future, as employees who utilize our gas stations typically spend more within the warehouse,” stated Costco CEO Ron Vachris on Thursday during a conference call with analysts, during which gasoline was mentioned 72 times.
Vachris pointed out that customers were experiencing financial strain in the past quarter due to dedicating a significant portion of their income to gasoline expenses. However, this situation provided Costco with an advantage: its competitive pricing.
Among its top-selling items, known for their “how can they sell it so cheap” appeal, are rotisserie chickens, which Costco offers for $4.99 – substantially less than what local supermarkets charge. These are strategically placed at the back of the warehouse, requiring customers to navigate through the aisles, thereby increasing the likelihood of impulse purchases of other items.
Recognizing the prevailing circumstances, Costco introduced discounted prices on meats and eggs (also situated at the rear of the warehouse) for its members, aiming to drive more traffic into the warehouses.
“We saw an opportunity, given our members were experiencing increased gas prices, to truly invest in enhancing member value,” explained Costco CFO Gary Millerchip during the call.
The question remains whether Costco can sustain these gains when gasoline prices eventually decline. Trends favor Costco when gasoline prices are on the rise, but they work in the opposite direction when prices fall.
The company remains hopeful that the momentum generated in recent months will persist even as gasoline prices decrease.
“Over time, it’s a great way to build loyalty,” Millerchip remarked. “We truly believe this is a good and healthy indicator of long-term growth for the business.”
Analysts have expressed skepticism. Investors, too. On Friday, the company’s stock saw a decline of nearly 4%.
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