Why Costco won’t cut gas prices as quickly as rivals

While gas prices remain over $4, they have fallen for three straight weeks, and news on the potential end of the hostilities in Iran set the stage for further drops.

"Since May 21, the national average has dropped from $4.56 to $4.12 thanks to crude oil prices remaining below $100 per barrel," AAA reported.

That's some needed relief for consumers heading into the heart of the summer driving season, but Costco members may not see prices fall as fast as they do at traditional gas stations, as well as Kroger and Walmart.

The warehouse club does that on purpose, and while its prices may not drop quite as fast as many other chains, that's part of a broader strategy to serve its member.

Costco has a gas plan

Costco intentionally prices gasoline differently than most competitors, a strategy the warehouse club has discussed publicly for years in earnings calls.

When gasoline prices fall, Costco does not lower prices at the same pace it raises them when prices are climbing. This allows the company to recoup some of the profits lost by doing the reverse when prices rise.

That lessens some of the pain at the pump for Costco members as prices climb.

Former Costco CFO Richard Galanti defended that practice, discussing the warehouse club’s gas business during its second-quarter 2022 earnings call.

“I think part of that story has been thrown away because it seems that not only us, but the supermarket retailers and other discount retailers that operate large numbers of gas stations, they’ve been able to use it too. As prices went up or went, even went down a little bit, they didn’t go down as fast as perhaps they could have been, which gives us, in our view, an ability to make a little more and still be the most competitive,” he said.

Costco uses low gas prices to drive members to its stores and to add to the value of their membership. That gives the chain flexibility on pricing, because it does not need to make as much per gallon as many rivals.

Costco sees gas as a member retention tool

Costco CEO noted that the warehouse club set a a record in each of the three months in its third quarter for gas sales by volume. He also explained that higher gas prices nationally fueled that, during his remarks in the chain's Q3 earnings call.

"The high consumer price sensitivity, which fueled these record volumes, also drove many members to use our gas stations for the very first time in the third quarter. We believe this will drive even greater loyalty with these members in the future as members who use our gas stations typically spend more with us in the warehouse," he said.

Costco has also dipped its toe into standalone gas stations. That's something GlobalData Managing Director Neil Saunders believes the chain could expand.

“Costco gas is wildly popular with members because of the cheaper prices. If successful, there are other locations where this could be implemented,” he told the Arizona Republic.

Kroger and Walmart take a different approach

Walmart uses gas incentives to drive people to its stores and to encourage membership in its $12.95 per month, or $98 per year Walmart+ service. Membership comes with a $0.10 savings per gallon of gas along with occasional special deals that offer even bigger savings.

A membership can also be used at partner stations and at Walmart's answer to Costco, Sam's Club.

"Save 10¢ per gallon at Walmart, Exxon, Mobil and Murphy stations and get member prices on fuel at Sam's Club," Walmart shared on its website.

In 2025, for Walmart Week, the chain's answer to Amazon's Prime Days, Walmart offered a $0.50 per gallon gas deal, according to a press release.

Walmart and Costco rival Kroger uses gas incentives to drive customers to its supermarkets. It recently shared a new summer has promotion.

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Kroger shared a new 4X Fuel Points promotion on June 8.

“Customers can earn 4X Fuel Points on every dollar spent every Friday from June 12 through July 24, as well as July 1-4, when they clip the digital coupon in the Kroger app or on Kroger.com and shop in-store, through pickup or via delivery,” the company shared in a press release.

Customers earn one Fuel Point for every $1 spent on groceries, but under the 4X promotion, they will earn four points for every dollar spent. Every 100 points saves you $0.10 per gallon, up to $1 per gallon with a maximum of $35 in savings.

You do not need to be a member or pay to join Kroger’s program, but you do have to register for it.

Costco keeps its program simple

RTMNexus CEO Dominick Miserandino believes that Costco won't be hurt by dropping prices slightly faster than its rivals, because it makes getting low prices easy for members.

“Costco wins because its value proposition is completely frictionless. You show your card, and you get the lowest price in town immediately,” he said.

Kroger has made its process too many steps, he explained.

“Kroger’s model requires digital coupon clipping, tracking specific calendar windows like ‘4X Fridays,’ and monitoring point balances. In a tight economy, convenience-fatigued consumers eventually reject complex loyalty gamification,” he added.

Americans are feeling the pain at the pump

Consumers are looking to save money on gas, and high gas prices are forcing them to cut back in another area, according to a Numerator survey of more than 1,000 U.S. consumers. Key findings included:

• 93% of drivers are trying to save money on gas.
• 36% choose stations based on price over convenience.
• 61% say gas prices are impacting ability to afford other expenses.

With gas prices averaging more than $4 per gallon, BMO Capital Markets Senior Economist Sal Guatieri explained that most Americans will have to spend less in other areas.

“Apart from undermining confidence, the increase will erode spending power, particularly for lower-income households. Gasoline and other fuels account for 2% of U.S. personal consumption, so the price increase, if sustained, could cut annual spending by about 0.7%. That works out to more than $1,000 for the average American household,” he wrote.

Related: Costco fixes its biggest customer pain points