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Cheap Gas: Why Does Costco Have Lower Prices Than Other Stations?

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As the Biden Administration recently banned all Russian imports of gas, oil, and energy, gas prices could continue to rise here in the states. Even though Russian oil accounts for only 3% of U.S. crude oil imports, demand for Russian oil in other countries is also driving up prices in the U.S.

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As gas prices reach record highs of $4.3 per gallon, according to Reuters, Americans may be looking for cheaper ways to fill up. If you are a member of a warehouse club like Costco, you may be tempted to take advantage of their lower-than-average fuel prices. But is the price too good to be true?

This week in Santa Clara, California — where gas prices sit well above the national average at $5.45 per gallon — Costco is charging club members $4.82 per gallon, according to SiliconValley.com.

How can retailers like Costco and Walmart offer such low prices for gas? Simple: Warehouse clubs have the volume and financial prowess to sell gas at rock-bottom prices (and razor-thin margins) as a way of luring customers in to buy other merchandise.

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What’s more, membership sales make up 75% of the store’s profit. Costco, for instance, is banks on customers signing up for a membership card to get cheap gas. Then, once consumers have the membership, they are likely to look for ways to save money on everything from groceries to electronics.

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Most gas stations are independently owned, meaning they aren’t big enough to order huge volumes at discounts the way wholesale clubs like Costco, BJ’s and Sam’s Club can. The wholesale clubs aren’t making much profit off gas. But they are betting that consumers will seek out their low gas prices, then enter their stores and spend money on other things.

That’s a pretty good bet when gas prices are as high as they are now.

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