First, the whole “membership” thing. Why would anyone actually pay a fee to be able to shop in a store? To me this is absolutely asinine. Then to hand over this store your personal information, your name, phone number address, possibly your email for Costco to use or sell to others. I personally refuse to give up my personal information and phone number to a private business.
Second, their ridiculous store. Yes, I have toured a Costco which is near my parent’s house. Who buys stuff in bulk? For instance a gallon of peanut butter, five gallons of beans or what I have seen, a literal two foot tall, several pound bag of Ruffles. Who buys this? Maybe people with large families? I can see people buying stuff for a busy office, especially coffee. But again, bulk? And then pay a membership fee to get a “membership” card? Huh?
Some of you will say that the “membership” card pays for the discounts. But you don’t get a discount, not really. Costco isn’t selling their products at cost. There still is a profit motive.
So explain to me why anyone would pay money to spend money in an impersonal warehouse store to buy bulk? Huh?
If the amount of money you save by buying your stuff at Costco over the course of a year is more than the yearly membership fee, you come out ahead. You must remember to figure in other “costs” if applicable. For instance, if you have to drive 30 extra miles to get to the Costco, that needs to be figured in. Also, if you buy stuff at Costco because it’s cheaper that you would not normally buy, and you don’t really need it, that must be accounted for also. But if all of this, and other things others surely will bring up are accounted for and you come out ahead, well, there’s your answer.
I pay 50 bucks or so for the membership. I save 250 bucks on my contact lens prescription over any close supplier. I save 4-5$/lb on steaks that are better than any I can get outside of specialty butchers where the differential is even greater. Milk is better and cheaper. Cheese is far better and cheaper. Toilet paper, paper towels, olive oil, Ritz crackers, the list goes on and on and on.
Did I mention gas if 50-80 cents a gallon cheaper?
If there is a Costco close by its foolish not to join. I’ve got two within 15 minutes and 4 within 30 minutes. No matter if I’m N S E or W of my home I can find one close by.
They charge a fixed amount over wholesale cost, and make almost all their money from memberships. They also do an incredible job of evaluating products, and have a really great return policy.
Just because they’re making a profit doesn’t mean it’s not cheaper than elsewhere.
Their wine and liquor is significantly cheaper and you can buy one bottle at a time.
We stock up on paper towels, etc. and save a few bucks
free samples on some food items.
I have no idea what the membership costs, as I get it free from work. But I assume it’s minor and worth it. You don’t have to buy a gallon of peanut butter. You can buy a TV, or some life jackets, or an electric tooth brush. Everything is a little cheaper. They have a good return policy, and plenty of check out lanes open during busy times. I like an “impersonal” shopping experience. If they have my phone number or email, they don’t use it.
For those who don’t like it, there are plenty of options.
Humans! Whatta ya gonna do?
I like impersonal, I like bulk. For a single or a young/old couple in an apartment, Costco isn’t where you go. But if you have kids and/or the storage/freezer space, they can save you plenty on very high quality items. Plus electronics, furniture, clothes, etc.
As for the OP’s example of a 2 lb. bag of Ruffles - obviously you don’t have friends. I’ve seen a dozen teenagers devour a bag that size in less than 5 minutes.
Because they have cheaper prices. Of course they are making a profit, but they are still selling many things for lower price than other stores.
You never buy stuff online then?
If you’d actually looked carefully, you’d have noticed that most things there are not bulk. You can buy one TV. One laptop. One bottle of wine. One pair of jeans. One pair of glasses.
Some things come in larger containers than other stores, but still manageable sizes. My wife goes through a 5 lb box of oatmeal in a couple of months. I bought a 2-pound pack of salmon there last week because I wanted a lot of smoked salmon left over.
Some things do come in ridiculous bulk sizes, but those are for the original target market for Costco: small businesses.
I also wonder about the OP, aren’t there a lot of products and services you aren’t interested in? Do you really take the time to understand why other people are interested in it? If not, what’s special about Costco?
There are few things in entertainment that I enjoy more than a true iconoclast telling the story of how an idea came to be, how it was brought to fruition, and what the outcome was. Thanks for the link, and tonight’s entertainment.
Is this true? I’ve often wondered about this. I haven’t done the math, because I’ve no idea how many members they have nor what it costs to run a store, but it feels like they wouldn’t be able to stay in business on membership fees alone. I’ve wondered if charging a membership fee is more of a way of guaranteeing loyalty (if I pay for a membership at Costco, I’m not going to shop anywhere else) than it is of generating necessary revenue.
But I don’t know. Maybe it’s covered in that podcast.
Costco (and other warehouse clubs) makes the majority their profit from the membership fees. $50-$100+ multiplied by the 90+ million members in the U.S.
The max markup at Costco is 15%. Which may not sound like a lot, but it’s 15% over the extreme lowball wholesale prices they receive because they buy in volume. Their next on item sales is only 2-3%, in line with supermarkets.
The family of four buying a gallon of mayo once every three months isn’t the primary target of warehouse clubs. The restaurants and bars that buy 10 gallons of mayo and other things every week are. Unless you shop during work hours, you usually never see more than a handful of these regulars.
And yes, it’s often cheaper for the restaurants and bars to buy from Costco than directly through distributors.
Non-members can shop at Costco, but they pay a 5% surcharge on their purchases. Or they can use a giftcard that a member has purchased for them.
Finally, In Hawaii, we have a local food distributor that opened up an open to the public warehouse a few years ago. It’s open to the public, but when they first opened, non-industry membership was free, as a come on. Now they charge $25. Costco memberships go up every few years.
That’s you, which is fine. Obviously many others don’t subscribe to your philosophy. Personally, I don’t give a shit who has my email address. It’s not like I’m giving them my SS number.
You don’t have kids, do you?
Buying in “bulk” is great when you:
[ul]
[li]Have kids and are making their school lunch every day[/li][li]Have teenagers who eat like hungry soldiers several times a day[/li][li]Buying for an office, school, church, or… really any place / situation where you have to feed more than a couple of people at a time[/li][li]are simply being price-conscious.[/li][/ul]
The benefits of buying in bulk should be self-apparent. Things can be divided and frozen or stored for later use. Additionally, many things aren’t huge industrial-sized containers of whatever but rather several regular-sized units in one larger container. For instance, if I get ketchup at Costco I’m not buying a 5 gallon bucket or something ridiculous but rather 4 regular-sized bottles for what I would pay for a single one at Safeway. A case of Kraft Mac & Cheese has 18 regular, individual boxes in it. This makes stocking the pantry easy and rather cheap.
It’s also a cheap way to stock up on the regular stuff we all use and don’t particularly think about: laundry soap and kitchen sponges and toilet paper and AA batteries. Yeah, I can get an 8oz bottle of Dawn at Walmart for maybe $1. Or I can get a 90oz (yes, that’s how big they are, I just checked) bottle of the same stuff for $4 from Costco. Why this is a benefit to people should not be a mystery.
Well, I will say that membership cards pay for the discounts. But since you apparently won’t believe me, I’ll let Costco speak for themselves:
That’s from their 2018 annual report. That’s just money coming in from membership fees—in other words, pure profit. $3.142 billion in profit.
I spend $5 per month to have access to inexpensive food, household items, toiletries, and gasoline. The gasoline savings alone pay for the membership if I fill up at the Costco gas station just once per month.
Thy have rather inexpensive eyeglasses, contact lenses, and prescription medications. I don’t utilize their pharmacy so I can’t speak from personal experience, but others have said good things about them.
They also have both auto purchase deals and auto rental deals. I know people who have used both., and the car rental program apparently is cheaper than any other local rental service like Enterprise.
I agree that shopping in a warehouse is impersonal, but so what? I’m not there for a massage.
ETA: The whole damn board is awake today. I didn’t realize I was so slow. So… what everyone else said already.
To add to the above, as I’ve stated, membership fees play a huge part in Costco’s business strategy. It’s icing on the cake for them, which allows them to grow and offer more variety of items to their members.
Which leads to the other major factor, volume sales. Supermarkets survive on their 2-3% profits, but 10’s or 100’s of millions+ of dollars in sales.
Another factor to Costco’s success is there’s little surplus waste and what there is (e.g. RMAs) is still a smaller loss due volume pricing. If an item doesn’t sell well, they drop it quickly. Also, because of the nature of their warehouse setup, they can sell everything, down to the very last of a particular product.
BTW, Amazon Prime works the same way. Liquid assets today allows purchasing more items at a lower price tomorrow. Plus it looks good on the books. $100 million in inventory is worth way less than $100 million in cash.
I don’t have a spreadsheet in front of me or anything, but my wife and I use Costco for a lot of staples and recurrent purchases. Others have hit the high points, what we save over the year on bully bones (yes, I know what they really are) for our dog pays for a membership. Then all the rest of the savings (primarily on meat, OTC meds, liquor and wine) is just all gravy.
But here’s the kicker. We’re executive members (impressive, I know) at a member cost of $120 for us for the year. One of the benefits of that tier is that we get 2% back on all purchases. We get a check at the end of the year that comes pretty close to being what we spent on the membership, so effectively we’re free members of Costco as long as we shop there a couple times a month. Can’t beat it.
I’ll bet you do it all the time, though. Do you ever order anything that gets shipped to you?
The bulk purchases (on many items) come out cheaper on a unit-for-unit basis than buying similar items in normal sizes from ordinary supermarkets. If you have the space in which to store it, non-perishable goods - paper towels, tissues, toilet paper, napkins, foil, ziploc bags, garbage bags, light bulbs, soap, dishwashing liquid, laundry detergent - can be bought in bulk cheaply. Also, food items (with freshness seals on top) like oil, ketchup, rice, soy sauce and coffee that are non-perishable.
And I do, in fact, have a large family, so for us it’s even handy for perishable items, like eggs, salami, cheese, fruits, bread and milk (the last of which is sold in sizes no greater than a gallon, but is almost always cheaper than in a regular supermarket).
So? It’s still cheaper for us consumers than stores that sell in smaller sizes. The savings every year easily adds up to more than the cost of yearly membership. The fact that they make a profit as well doesn’t bother me, why should it?
A lot of these things you technically can do without a membership, but only select things or you have to have someone else buy you a gift card.
It’s $60 per year for the basic membership. Tip: you can split it with your roommates, and retain shared membership long after you moved out.
For an example, a 750 ml bottle of Bulleit bourbon is like $27-35 at a random liquor store, $33 for 1750 at Costco. 50 to 60% cheaper. To nurse that hangover, Ibuprofen is 1/6 the price of a pharmacy.
You are being spied on and advertised to just for using Google. As for Costco, I benefited when I was single, and it’s even more feasible if you have a family.
I forgot about these. These are a huge savings over anywhere else. Especially supplements. I buy Fish Oil, multivitamins and calcium at costco. A big bottle of fish oil capsules at Costco is something like $9 or $10 for a bottle of 400. My local Walgreens has 60ct bottles for $12. Why would I go anywhere but Costco for that stuff?
Metamucil tablets are $18 for 720 capsules at Costco. They’re $10 for 160 at Walgreens (both generic brands of course).
And of course they have similar savings on other OTC meds.
That’s their Gross Profit on memberships, far from pure profit due to various overhead. The net, which I don’t want to bother to calculate, is far less and generally irrelevant to the average investor who just wants to read how much overall net profit Costco made.
Factor in gas and time spent shopping as additional cost savings.
Also, just because you don’t need 10 pounds of apples, you can share with friends and family. If you’re really thrifty, you can even split the membership costs amongst though you buy for.
Bottom line, Costco’s model is extremely successful and profitable, regardless if you understand [or buy into] it or not.
