Why soaring gas prices are a big opportunity for Costco, Walmart and BJ’s

National average gas price jumped to $3.41 a gallon on Friday, according to AAA, 61% higher than the average for the same time last year. The Biden administration has called for a investigation on whether oil and gas companies are acting illegally to push prices up.

The spike has prompted many shoppers to rely on these chains to refill their tanks, according to companies, retail analysts and fuel experts. Gas prices at warehouse clubs can be up to 30 cents lower than at traditional gas stations, and chains offer members coupons to use in their stores when they fill up. Selling gas at warehouse clubs is a big part of their business and draws customers inside.

“People are looking for clubs for gas,” said Michael Baker, a retail analyst at DA Davidson. “It’s the nature of the American consumer to want to lower the price of gas.”

For example, Costco is typically 20 cents a gallon below the market average, according to Tom Kloza, global head of energy analysis at IHS Markit’s Oil Price Information Service. BJ’s says it’s 10 cents below the average.

These companies are “winners when gas prices skyrocket,” Kloza said.

Costco (PRICE), Sam’s Club and BJ’s (BJ) want you to fill up the pitchers in their parking lot and then stock up on giant jugs of ketchup, boxes of snacks, and clothes. (And why not buy a flat-screen TV or a new couch while you’re at it?) Their gas stations give these warehouse stores an advantage many retail competitors can’t. match.
Gas accounts for about 10%, $20 billion annually, of Costco’s total revenue and 9% of BJ’s. Walmart (WMT), which owns Sam’s Club, did not disclose what part of its revenue comes from gas.

Gas is a low-margin business, says Kloza, but retailers can make money selling huge volumes of gas – even if charging much less than independent gas stations1 million gallons a month compared to an average of 80,000 gallons a month at typical gas stations.

Despite their big brand names, the majority of gas stators from Exxon, Chevron, BP and Shell are independently owned, so they cannot make the bulk of them as wholesalers do. While wholesalers can make a profit on gasoline, they don’t make much: Costco, for example, reported that gasoline has lower margins than the rest of its business. Rising gas prices often help Costco sell, but hurt its bottom line.

“When there are inflationary pressures and prices are rising, people are looking for ways to save on gas,” said Richard Galanti, Chief Financial Officer at Costco. More than half of every 100 people who go to Costco to get gas, he said, go to the store inside.

Gas sales at BJ’s Wholesale Club were up 20% in the most recent quarter ended October 30 compared with the same time a year ago.

CEO Robert Eddy said on a call with analysts Thursday. When gas prices hit more than $3 a gallon, “members love us” and shift their gas spending to the club.

Gasoline discounts are a tool Walmart uses to encourage customers to sign up for a Walmart+ membership, which also offers free shipping and discounts on prescriptions.

On Tuesday, Walmart said it was actively trying to lower gas prices to appeal to customers worried about how much they’ll have to pay for the pump, especially as federal stimulus benefits dwindle.

Walmart CEO Doug McMillon said: “Gasoline prices are a concern…. They’ve increased significantly from a year ago. “Customer already has money [then]. And at some point, that will end. ”


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