Wed 23 May 2007
This is a view from the Costco gas pumps this morning at around 8:15. Notice how there is not one car in line.
This is just a follow-up of the previous post about the economics of getting gas at Costco. Go on a weekday morning. It is amazing how much time and money I can save by planning a time to get gas instead of getting gas when I happen to be driving around which is always during prime gas hours.
Another interesting thing about Costco gas is their supply chain. I’ve been trying to find something online that explains their supply chain and I found this CNN article, although it is about 8 years old. It explains the “hypermarket” strategy to discount gasoline. Costco and other big retailers or supermartkets these days have opened up gas pumps on their property and are able to offer gas at a discount by avoiding rent and other overhead costs, while staying aloof of contracts with big fuel distributors by buying from local suppliers.
It is interesting to see the disadvantage of this approach. This morning I saw this sign over the premium octane selector:
Because the model of “hypermarkets” restrict themselves to only buy from local distributors in order to avoid contracts and fees with national distributors, they also run the risk of shortages by buying from a smaller market. Evidence of this is their shortage today of Premium Octane.
This shortage doesn’t effect me personally, since I don’t drive a car that supposedly requires this.
May 23rd, 2007 at 3:48 pm
This is an interesting economics puzzle - obviously they could source some premium gasoline if they are willing to pay more for it - so perhaps costco just decided not to offer it since they couldn’t have a better price at the pump than local gas stations.
Considering their captive audience at the pumps I think it speaks volumes about their long term strategy - we offer the best prices, if we can’t we won’t sell it. Makes me feel better about shopping there.
May 23rd, 2007 at 4:27 pm
yeah, and i think that offering premium at the same price as other regular pumps would hurt their brand, which is basically what you are saying in a way.
May 23rd, 2007 at 8:19 pm
Costco has excellent muffins.
May 24th, 2007 at 8:00 am
Interesting point, Preston.
As for me, my car does need premium, so I guess costco is out for the next little while. I know this because the engine pre-detonates on low octane. So cars that “supposedly” need high octane gas often really do.
May 24th, 2007 at 3:35 pm
[…] I was going to talk about this in yesterday’s post about Costco gas economics, but I held back just because I knew some people would object, but I’ve done a little research, so to Sam’s comment, this is just my humble opinion. […]
August 7th, 2007 at 4:05 pm
[…] As I said in a previous post, Costco Gas buys from local markets and sells it at prices that are probably pretty close to wholesale. […]