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

The national gas price average jumped to $ 3.41 per gallon on Friday, according to AAA, 61% higher than the average at the same time last year. The Biden administration has requested an investigation into whether oil and gas companies acted illegally to push up prices.

The spike has pushed several buyers to trust that these chains fill their minds, say the companies, retail analysts and fuel experts. Gasoline prices at warehouse clubs can be as much as 30 cents lower than traditional gas stations, and the chains offer members coupons that can be used in their stores when they refill. Petrol sales at the warehouse clubs are an important part of their business and attract customers inside.

“People go to the clubs because of the gas,”[ads1]; said Michael Baker, a retail analyst at DA Davidson. “It is the nature of American consumers to go out of their way for lower gas prices.”

Costco, for example, 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 average.

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

Costco (COST), Sam’s Club and BJs (BJ) want you to fill up the tank in their parking lots and then fill up giant jugs of ketchup, boxes of snacks and clothes. (And why not buy a flat-screen TV or a new sofa while you’re at it?) Their gas stations give these department stores an advantage that many retail competitors can’t match.
Gas accounts for around 10%, $ 20 billion annually, of Costco’s total sales and 9% of BJs. Walmart (WMT), which owns Sam’s Club, does not disclose which part of the sale comes from gas.

Gas is a notoriously low-margin business, but retailers can make money selling huge volumes of gas – even while charging much less than independent gas stations, Kloza said, adding that it is not uncommon for sales at a Costco location to reach 1 million gallons. per month compared to an average of 80,000 gallons per month at typical gas stations.

Despite their big brand names, the vast majority of Exxon, Chevron, BP and Shell gas statons are independently owned, so they are not able to make a volume game like wholesalers do. Although wholesalers are able to make money on gas, they do not make much: Costco, for example, reported that gasoline has a lower profit margin than the rest of the business. Rising gas prices usually help Costco’s sales, but hurt profits.

“When there is inflationary pressure and prices go up, people are looking to save on gas,” said Richard Galanti, Costco’s chief financial officer. For every 100 people who come to Costco to refuel, more than half go shopping afterwards, he said.

Gas sales at BJ’s Wholesale Club increased by 20% during the last quarter ending October 30 compared to the same time a year ago.

BJ’s is increasing its market share in gasoline “by leaps and bounds,” CEO Robert Eddy said in an interview with analysts on Thursday. When gas prices reach over $ 3 per gallon, members “love us” and shift fuel consumption to the club.

Gas rebates are a tool Walmart uses to encourage customers to sign up for Walmart + memberships, which also offer free shipping and prescription discounts.

Walmart said on Tuesday that it is actively trying to keep gas prices down to attract customers who are worried about how much they are paying at the pump, especially as the benefits of federal incentives diminish.

“Gas prices are a concern …. They have risen dramatically compared to a year ago,” Walmart CEO Doug McMillon said in an earnings interview. ‘Customers had money [then]. And at some point, it’s going to end. ”

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