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Costco Wholesale Corp. plans to start selling gasoline at its Chicago warehouse store, a move expected to drive more sales at the possible expense of the club store’s profitability.
Costco monitors prices at nearby gas stations and matches or undercuts them in order to attract drivers. With high gas prices, Costco has seen year-over-year gains in the number of gallons it sells, Costco CFO Richard Galanti told Reuters. While gas is a profitable business, it is a volatile, “very low-margin business,” Galanti said.
But Costco hopes low pump prices – typically 6 to 12 cents below market price – will help attract and retain club members who spend money in its stores. The key for Costco, market analyst Laure Champine told Reuters, is driving people to sign up for and renew their annual memberships. “The membership fees are really where they make their money and if people are led to join up, that's great news for them,” Champine said.
Though Costco’s gas operations lose money some weeks as the company cuts prices to stay competitive, selling gasoline is a profitable move over the long haul, Galanti told Reuters.
Costco is the only major U.S. warehouse chain that operates in Chicago. Construction on the station began last week and it is expected to be completed by late June.
The recent average price for regular gasoline in the greater Chicago area was $4.39 per gallon, up from $3.12 a year ago and above of the national average price of $3.94, according to AAA data.
Supermarket operators also operate some gas stations and offer their shoppers various discounts.