In its annual report filed in October, Costco shows that 50.6% of its operating profit last year came from one line: membership fees, worth $5.9 billion out of $11.7 billion from operations. The rumor says Costco gas is a loss leader. The company’s own filing never uses that phrase. It says the gas business enhances traffic in its warehouses and has a lower gross margin percentage than everything else it sells. Lower, not negative.
The math, run forward:
Take the membership fees out and what is left of operating profit is 1.94% of net sales. Less than two cents on every dollar spent inside. The warehouse is built to run on almost nothing; the fee is where the profit lives. In the United States and Canada, 92.3% of members renewed, across 84.1 million paid memberships.
Costco ran 343 gas stations at the end of fiscal 2010 and 774 at the end of fiscal 2026, up 126%, while warehouses grew 74%. Gas was 11% of sales last year. The average price per gallon rose 12% and gallons rose 7%.
Costco does not report gallons or profit per gallon, so these are our own estimates: about $32.7 billion of fuel, on the order of 10 billion gallons, about 12.9 million gallons per station against about 1.25 million at an average convenience store. At 10 to 20 cents a gallon that is $1 to $2 billion of gross profit, against $5.9 billion in fees. The last outside estimate with a name and a date, from the Oil Price Information Service in late 2018, put the spread at about 11 cents.
The fee was 81.4% of operating profit in 2010 and 50.6% in 2026. The store got better at earning on its own, and the fee still carries half the company.
How much cheaper is the gas? It depends on the comparison: 34 cents against the national average (OPIS), 24 cents against the state average (Gordon Haskett, using GasBuddy prices), 9 cents against the five closest competitors. The last two figures come from press reports, and the 34 cents came through a secondary source.
Who sits on the other side of the price gap: the National Association of Convenience Stores counts 122,620 fuel-selling stores. In 2025 fuel was 65% of their revenue and 38.8% of their gross profit. The station on the corner needs the gallon to pay its bills. Costco needs it to bring members in. Part of the gap is scale and part is costs the warehouse does not carry, such as card fees of $21.3 billion across the industry.
The number that decides it: the Bureau of Labor Statistics says the average household spent $2,411 on gasoline in 2024, about 729 gallons. At the 9-cent discount, that saves $65.60, almost exactly the $65 fee. At 24 cents, $175. At 34 cents, $248. Flip it: the pump alone pays back the fee at 722 gallons a year at 9 cents, 271 at 24 cents, 191 at 34 cents. A 12-gallon fill-up at 24 cents saves $2.88, and the I.R.S. puts the full cost of a mile at 72.5 cents, so a detour of about 4 miles can eat the saving. That 729 is an average that includes households with no car. A daily commuter sits well above it; a short drive or an electric car sits far below, and the pump will never pay their fee.
Why it still matters: the pump does not capture everyone. Costco’s CFO said that a little less than half of members at the gas station also go into the warehouse, and renewal slipped from 92.9% to 92.3% across two years of huge gas sales. Nobody here is being tricked. This is what the incentive looks like when you follow the money to the end.
The cheap gallon is not a gift. It is the receipt for something paid in advance, and the price on the sign is the least important number at that station.
Watch: What the Hell Is Really Happening to Costco Gas Prices, https://youtu.be/UwaCP2t4lH0
No advice here. No tips, no recommendations. Just the numbers, and where each one is published. The full source list is in the video description.
— The Cost of Living