Costco has a powerful weapon as gas prices rise

Rising gas prices are pushing more Americans to rethink how (and where) they drive.

Even drivers who do not fill up often are noticing the spike in gas prices.

As someone who drives an electric vehicle with a two-gallon emergency backup gas tank, I was a little surprised on May 8 when filling my nearly empty tank cost me almost $10. Filling my son’s tank later that day set me back almost $45, and he drives a Prius with a relatively small 12-gallon tank.

High gas prices are not a short-term anomaly.

“Drivers are seeing another sharp increase at the pump, with the national average for a gallon of regular gasoline rising 25 cents for the second consecutive week to $4.55. Pump prices are now $1.40 higher than they were a year ago and have reached their highest level since 2022, when the national average peaked at $5.01 per gallon,” according to a May 7 report from AAA.

Recent U.S. gas prices May 7 National Average: $4.55One Week Ago: $4.30One Month Ago: $ 4.14One Year Ago: $ 3.15

Higher fuel costs historically benefit warehouse clubs like Costco because consumers become more willing to drive farther for cheaper gas.

Gasoline demand has fallen

“Gasoline demand decreased last week from 9.10 million b/d to 8.81 million. Total domestic gasoline supply decreased from 222.3 million barrels to 219.8 million. Gasoline production decreased last week, averaging 9.6 million barrels per day,” according to new data from the Energy Information Administration (EIA).

The nation’s top10 most expensive gasoline markets are California ($6.16), Washington ($5.76), Hawaii ($5.66), Oregon ($5.34), Nevada ($5.23), Alaska ($5.21), Illinois ($4.99), Arizona ($4.84), Ohio ($4.78), and Michigan ($4.78).The nation’s top 10 least expensive gasoline markets are Oklahoma ($3.98), Mississippi ($4), Louisiana ($4.02), Arkansas ($4.02), Nebraska ($4.08), Texas ($4.09), Georgia ($4.09), Alabama ($4.10), Kansas ($4.11), and Missouri ($4.16).

Prices have already climbed past the point when a 2022 AAA survey showed consumers would change their driving behavior.

“Over half (59%) said they would make changes to their driving habits or lifestyle if the cost of gas rose to $4 per gallon. If gas were to reach $5…three-quarters said they would need to adjust their lifestyle to offset the spike at the pump,” the survey showed.

Some Americans, however, noted that they can’t really cut back on driving.

“You’ve just got to fill it up and bite the bullet and hope that the prices go back down — that’s all I can really do,” Tyler Nepple, who runs a startup in the Orlando area told the Associated Press. “I still have to get from point A to point B, and I need gas to do that.”

Costco pulls multiple gas levers

Unlike many traditional gas stations, Costco does not rely heavily on fuel margins for profit.

Economics professor Alan Gin from the University of San Diego believes the motivation for Costco’s aggressive gas price strategy has to do with how Costco makes its money.

“The bulk of their profits come from memberships,” he told ABC News.

Gin says up to 70% of Costco’s profits come from the $65 or $130 that customers pay for the right to shop at its warehouses.

“Clubs like Costco and BJ’s use gas as a ‘loss leader’ to attract new customers and get more foot traffic into their stores,” according to Investing.com.

Warehouse clubs, Investing.com noted, typically sell gas about 10 cents below typical street prices (sometimes as low as 20 to 30 cents).

“Why sell gas at a razor-thin margin? Because that helps get people in the door, and justifies the cost of their membership. Customers who notice the savings they receive on gas are more likely to venture into the warehouse for higher-margin goods, especially when economic sentiment is poor, and consumers are worried about stretching their dollars,” the website added.

Gas drives consumers to Costco

“Generally speaking, we see about half of members who will shop at the gas station will also cross-shop at the warehouse,” CFO Gary Millerchip shared during Costco’s second quarter 2026 earnings call.

Higher gas prices drive traffic to the warehouse club.

“Generally speaking, if gas prices start to increase, then we tend to see our value proposition resonate better with members, just because obviously we want to be the pricing authority on gas,” Millerchip shared.

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Members make more of an effort to gas up at Costco when gas costs more.

“And so when prices are higher, that will tend to cause members to maybe take the extra mile that it might involve to get to the gas station because of the incremental value they see there,” he added.

Gas prices have been steadily climbing.

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Costco has another fuel advantage

When gasoline prices fall, Costco does not lower prices at the same pace it raises them when prices are climbing. This allows the company to recoup some of the profits lost by doing the reverse when prices rise.

In theory, that relieves some of the pain at the pump for Costco members as prices climb.

Former Costco CFO Richard Galanti defended that practice, discussing the warehouse club’s gas business during its second-quarter earnings call.

“I think part of that story has been thrown away because it seems that not only us, but the supermarket retailers and other discount retailers that operate large numbers of gas stations, they’ve been able to use it too,” the longtime-Costco executive shared.

” As prices went up or went, even went down a little bit, they didn’t go down as fast as perhaps they could have been, which gives us, in our view, an ability to make a little more and still be the most competitive,” he said.

Higher gas prices drive shoppers to warehouse clubs.

“People are seeking out the clubs because of the gas. It’s U.S. consumers’ nature to go out of their way for lower gas prices,” Michael Baker, a retail analyst at D.A. Davidson, told CNN.

Costco saw an increase in April sales.

“Comparable sales for the month, excluding the impacts from changes in gasoline prices and foreign exchange, were as follows: U.S., 8%; Canada, 7.6%; Other International, 6.5%; Total Company, 7.8%; Digitally-Enabled, 18.4%,” the company shared in its April earnings statement.

When you add in the impact of higher gas prices, total reported comp sales rise by an additional 3.2%.

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